While the market seemed generally unimpressed by the Federal
Reserve's pledge to hold interest rates down until the U.S.
unemployment rate drops below 6.5 percent, the usual suspects
among
ETFs
performed as expected Wednesday.
Following the conclusion of the central bank's last monetary
policy meeting of 2012, the PowerShares DB US Dollar Index
Bullish (NYSE:
UUP
), the ETF equivalent of the U.S. Dollar Index, fell almost 0.2
percent on above average turnover. The SPDR Gold Shares (NYSE:
GLD
) and the iShares Gold Trust (NYSE:
IAU
) closed slightly higher. The iShares Silver Trust (NYSE:
SLV
) impressed with a gain of 1.4 percent on strong volume.
There is another near-term option for traders looking to take
advantage of monetary easing and it arguably has nothing to do
with the Fed. Emphasis on "near-term," but it is worth noting the
ProShares UltraShort Yen (NYSE:
YCS
) surged 1.5 percent on volume that was better than triple the
daily average on Wednesday.
In the process, the ProShares UltraShort Yen broke through
resistance in the $46 area to close at $46.72. That is the
highest closing print for YCS since April.
The utility of YCS, which in the words of its issuer "seeks
daily investment results, before fees and expenses, that
correspond to two times the inverse (-2x) of the daily
performance of the U.S. Dollar price of the yen," is clear.
Japan, the world's third-largest economy, is scheduled to hold
elections on Sunday December 16. Given recent price action in
YCS, it would appear forex traders are pricing in victory for
Shinzo Abe in his quest to become prime minister again and for
Abe's Liberal Democratic Party.
Should Abe emerge victorious, the yen will likely plummet
because Abe has been vocal in his desire to weaken his country's
currency. In fact, Abe is a dream come true for quantitative
easing addicts because he has called on the Bank of Japan to
engage in unlimited easing
.
Recent polls suggest Abe will win and that Japan's ruling
Democratic party will suffer significant losses. That is good
news for YCS.
Proper trading of YCS revolves around remembering two key
points. First, YCS is a leveraged ETF just like the more widely
known Direxion Daily Financial 3X Bear Shares (NYSE:
FAZ
) or the ProShares UltraShort S&P500 (NYSE:
SDS
). That means YCS is best used as a short-term instrument not a
long-term investment.
Second, the yen has a penchant for short-term declines when
the Bank of Japan intervenes in the currency market or when
rhetoric, such as Abe's, is favorable. However, the Japanese
currency has been strong in recent years. YCS has a plain vanilla
counterpart, the CurrencyShares Japanese Yen Trust (NYSE:
FXY
). FXY's daily chart is a train wreck, but over the life of that
ETF, it has surged 40.5 percent.
Perhaps Abe will be able to affect real downside for the yen,
but until that becomes clear, treat YCS as a trade because the
near-term forecast is sunny. Worry about the long-term outlook
another day.
For more on ETFs, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.