are leveraged by their structure of holdings (rather than by
financial borrowing) to compound the effect of the ETF's price in
relation to changes in the prices of the underlying holdings.
As such, they tend to be volatile in nature, so are attractive
vehicles for swing trading and for careful active shorter-term
investing over periods of a few months. They have the advantage of
ease of position entry and exit, and never require margin coverage
beyond the initial cost commitment.
In over four years,
Direxion Daily Energy Bull 3X Shares
(NYSEARCA:ERX), the (3x) leveraged ETF holding energy stocks, has
had 75 days with forecasts as attractive as the current one, and
all but three of them have produced gains in our time-efficient
Including all 75, the average gain of 17.5% achieved in average
holding periods of about three months, earned at an annual rate of
80%. The typical worst-case drawdown from cost was -18%, about
equal to the average gain, but was recouped in nearly every holding
to a substantial profit.
Direxion Daily Small Cap Bull 3X Shares
(NYSEARCA:TNA), a (3x) leveraged small-cap index-tracking ETF, is
another high-return performer after seeing forecasts as appealing
as the present. In over 200 prior cases, 94% of them were
profitable, with average gains, including the 13 losers, of 16%.
Holding periods of only ten weeks put the annual rate up to over
100%. Average maximum drawdowns of -14% were well under the typical
profit, and nearly all were recouped and turned into nice profits.
ProShares Ultra Basic Materials
(NYSEARCA:UYM), a (2x) leveraged ETF holding basic materials
stocks, has had nearly two years of days (out of five years) with
forecasts at least as attractive as today's, and has been able to
reward investors with profits in seven of every eight cases.
Including the losses, gains averaged 15.5% in typical holding
periods of 11 weeks, to score at an annual rate of 93%. Maximum
drawdowns averaged -11%.
Other leveraged long ETFs achieved attractive gains, but these
three were the largest and most consistent.
(INDEXCBOE:VIX) usually goes down -- reflecting compressing
uncertainty conditions -- as the stock market rises,
volatility-focused ETFs all suggest a rising market, in contrast to
what the pros' forecasts of our monitored population indicate. The
apparent contrary posture of SVXY is due to its structure as an
If markets continue to rise, the
ProShares Short VIX Short-Term Fut ETF
(NYSEARCA:SVXY) will likely have a strongly leveraged price gain.
So here is an alternative: Buy SVXY if you think we are likely to
see momentum, Boston Strong optimism, and US consumer spending
(regardless of a dismal jobs picture) continuing, at least among
the 85% to 90% of the work-desiring and employed population.
Or, if the chaos in Syria, Iraq's return to religious conflict, the
North-African Arab Spring losing its democracy, Iran continuing to
spoof the rest of the world in an effort to catch up to North
Korea, and Cyprus' contribution to the dissolution of Germany's
effort to finally control the rest of Europe via a common euro
currency bothers you, then maybe the now-weakened gold market is a
place to hide.
We prefer to focus on choices of specific investment opportunities
as appraised by well-informed, at-risk, and experienced players,
and leave the general background noise for talking heads to babble
about from their TV-prompter scripts.
Avoiding a "long-term-investment" mentality for active,
shorter-term focus on timely opportunities keeps investment
portfolios flexible to adjust with changing circumstances.
Editor's Note: This article was written by
Peter F. Way of
Block Traders' ETF Monitor
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