U.S. stocks sank Wednesday after Federal Reserve meeting
minutes showed the central bank may ease or even cease its $85
billion-a-month bond-buying program before the world's largest
economy truly gains momentum.
At least that is the catalyst most often tossed around in the
financial media today for the glum action in equities. With that,
a case can be made that Wednesday's decline was a one-off event.
After all, stocks have impressed this year as the S&P 500 is
still up up about 3.5 percent year-to-date.
Then again, there are signs that select asset classes could
see more near-term downside. For the agile trader, leveraged
could be the instruments with which to exploit further short-term
weakness in riskier assets. Consider the following group:
Direxion Daily Emerging Markets Daily 3X Bear Shares (NYSE:
) Before establishing a bearish position within the emerging
markets universe, traders should note a couple of things. First,
plenty of pundits have recently been clamoring about weakness in
emerging market equities. Those statements are broad in stroke
and ignore obvious strength in select markets and the ETFs that
track those markets such as the Philippines and Thailand.
Second, traders need to remember what ETF many institutional
investors use for emerging market exposure. That being the
iShares MSCI Emerging Markets Index Fund (NYSE:
). EEM is dominated by four countries - China, South Korea,
Brazil and Taiwan. The four major ETFs tracking those nations are
all in the red year-to-date.
And that is why EDZ makes the cut here. The ETF attempts to
deliver three times the daily inverse performance of the MSCI
Emerging Markets Index, the index tracked by EEM. Persistent
weakness in the aforementioned quartet of countries will be a
drag on EEM, but a boon for EDZ. On a related note:
ProShares UltraShort FTSE China 25 (NYSE:
) Just went it looked safe to be long Chinese stocks and ETFs,
the reverse has proven true. China ETFs finished 2012 in strong
fashion, but have been outright laggards in 2013. With a loss of
one percent on Wednesday, the iShares FTSE China 25 Index Fund
), the largest China ETF by assets, is now down nearly 6.8
FXI has violated its 50-day moving average and could fall
another seven to eight percent before finding its next support
area. Split the difference and say FXI falls another 7.5 percent
and FXP should (emphasis on "should") deliver gains in the area
of 14 to 15 percent. FXP is designed to deliver twice the daily
inverse returns of the index FXI tracks.
PowerShares DB Crude Oil Double Short ETN (NYSE:
) For the most part, West Texas Intermediate futures have
performed admirably this year. Even with Wednesday's 2.3 percent
loss, the U.S. Oil Fund (NYSE:
) is still up 1.8 percent year-to-date. However, crude futures
are now a facing some concerning fundamental and technical
On the fundamental side, any hints that the Fed is close to
ending its bond-buying activities will likely boost the dollar.
As it is, the PowerShares DB US Dollar Index Bullish (NYSE:
) is up 1.3 percent in the past week alone. Second, any signs
that global growth is slowing will give traders reasons to depart
riskier assets such as oil.
On the technical side, WTI futures are struggling to break
through the $97 area. Wednesday's slide below $95 per barrel may
be a sign traders have thrown in the towel on $97 and are ready
for more downside. Good news for DTO, which is designed to
deliver twice the daily inverse performance of the Deutsche Bank
Liquid Commodity Index. That index is composed of WTI futures
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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