ETF Top Gainers – Silver, Energy and Inverse Volatility Win Out (SPY, XIV, GAZ, SIL, SLV, TYH, QQQ, AGQ, ERX)
US equities continued their ascent with the S&P 500 (NYSE:SPY) up 2.8% despite a worsening nuclear crisis in Japan, an undeclared 3rd war front with Libya and multiple Middle East fiefdoms on the verge of collapse. Evidently, the prospect of cheap money, another round of Quantitative Easing rumored and record corporate profits continue to capture the momentum over any bad news in the geopolitical spectrum. For the week, the hottest ETFs were related to Silver, Energy and inverse volatility funds. Here are some top conventional and leveraged performers for the prior 5 trading sessions which may set the tone for this week’s trading:
Non-Leveraged ETFs:
Credit Suisse Inverse VIX (NYSE:XIV) - Up 16% -This recently launched ETF has benefited from a continued uptrend in equities. Basically, as a double-negative if you will, of market enthusiasm, one should expect XIV to rally when the market does. See, the underlying VIX is the “fear index” based on put options to call options. The VIX spikes when investors become fearful and volatility increases. As markets rally and greed overtakes fear, volatility decreases. Since launching in Dec2010, XIV is up 42% versus 11% for the S&P500 (NYSE:SPY). Just note that during a severe downturn, XIV can drop precipitously. Note also that XIV is an ETN, not an ETF, with the primary difference being that the investor takes on credit risk of the issuing company.
Barclays iPath DJ Natural Gas (NYSE:GAZ) – Up 13% -Natural gas had a strong week on the heels of the nuclear disaster unfolding in Japan. Investors must be pricing in the likelihood that nuclear power will face continued hurdles in the US, mandating further reliance upon natural gas longer than would have been anticipated in lieu of the disaster. The irony is that the newer nuclear reactors being designed now would have withstood the same calamity, but now they may never be built. GAZ has been up strongly in the past two weeks, rebounding from a dip since the start of the year. YTD, GAZ is only up 7% in spite of last week’s 13% gain. Note that GAZ is also an ETN, not an ETF.
Global X Silver Miners (NYSE:SIL) – Up 9% – This silver miner ETF launched roughly a year ago and has somewhat trailed the underlying returns on silver itself. Using the iShares Silver ETF (NYSE:SLV) as a proxy, SIL is up about 89% since launch last April versus 108% for SLV. Note however, that there are differences in silver tax rates depending on the ETF you select due to gold and silver being treated as “collectibles”, so it may well be a wash in the end, depending on your tax bracket. Much of the driver behind the gold and silver move in the past few years has been the growing concern over the US Dollar’s lack of standing in the world and the fiat currency model which allows constant printing, while the output of precious metals is virtually at capacity and exist in finite quantities.
Leveraged ETFs:
Direxion Technology Bull 3X (NYSE:TYH) – Up 15%-Tech has continued to dominate this recovery, especially in light of expanding margins as productivity reaches decade highs. As corporations learned to cut payrolls and expand back to pre-Recession output without hiring back, margins have been helped in large part to efficiency-enabling technologies. While TYH is coming off a strong week, it’s one of the most volatile ETFs in existence, which is a detriment to leveraged ETFs due to daily rebalancing which results in ETF decay. We see it in all leveraged ETFs eventually; it’s just a matter of when the trend breaks. In spite of last week’s strong performance, TYH is only matching the return of the NASDAQ ETF (NASDAQ:QQQ) with about a 4% return for each YTD (even though investors might have expected triple the return!).
ProShares Ultra Silver (NYSE:AGQ) – Up 12% -As cited in the non-leveraged performance of the silver bullion and mining ETFs, AGQ is the 2X daily return leveraged ETF. During uptrends, AGQ has been spectacular since silver has not seen a major correction in weeks. AGQ is up 22% in the prior month and 39% YTD. If you entered a year ago, your gain would be 305%. As difficult as it seems to believe, some leveraged ETFs can maintain their gains this long as long as the trend remains unbroken. However, a correction wipes out these gains quickly. With the hysteria was saw in gold and silver, you’ll definitely want to check out the silver pairs trade strategy whereby you can benefit regardless of the direction of underlying bullion.
Direxion Energy Bull 3X (NYSE:ERX)– Up 12% - Energy stocks have continued to benefit from the overweighting of fossil fuel companies in the indices, the potential demise of nuclear energy in the future of many countries, unrest in the Middle East and a continued global rebound. The fundamentals, geopolitics and the momentum seem to support continued strength in the energy complex. YTD, ERX is up 46%. The 1 Year return on ERX is 135%.
Written By ETF Base Disclosure: No position in any of the aforementioned ETFs or ETNs.
ETFBase provides everything from news of impending ETF launches to in-depth reviews and analysis of market busting ETFs as well as how to exploit divergences/arbitrage across various sectors and ETFs. The author has over a decade of active trading experience and years of financial analysis and blogging under his belt. The author has a background in Chemical Engineering and an MBA specializing in Finance and Biotech Management. He is primarily focused on alternative investment strategies that aren’t widely covered in the mainstream press such as hedging strategies, non-market correlated instruments, high-yield investments, international/developing markets, small biotechs and arbitrage. http://etfdailynews.com/blog/2011/03/27/etf-top-gainers-%E2%80%93-silver-energy-and-inverse-volatility-win-out-spy-xiv-gaz-sil-slv-tyh-qqq-agq-erx/
Payrolls climb to 216,000, jobless rate 8.8% Economy enjoys fastest rate of employment growth since May
Nonfarm payrolls grew by a seasonally adjusted 216,000 in March, their fastest pace since last May, the Labor Department said Friday, in an indication of an improving labor market.
According to the survey of 400,000 business establishments, private-sector payrolls increased by 230,000 jobs after rising by 240,000 in February, marking the first time that private-sector job gains have been over 200,000 for two straight months in five years. Read “More jobs, but wages aren’t keeping up.” http://www.marketwatch.com/story/us-payroll-climbs-to-216000-jobless-rate-88-2011-04-01?dist=afterbell
Goldman rocks oil for second day, sees $105 Brent Goldman Sachs (GS.N) rocked oil markets for a second day Tuesday by calling for a nearly $20 fall in Brent crude oil, saying speculators had pushed prices ahead of fundamentals.
It was the second warning of a steep market reversal from the long-term commodity bull in as many days, after it recommended clients close a trade on Monday heavily weighted toward U.S. crude futures.
Oil prices have shed around $6 a barrel since Monday's open. Traders and analysts said the bank can have an out-sized influence on commodities, given the insight and reach of its global trading arm J. Aron and history of being one of the first banks to predict $100 oil last decade, in March 2005 when prices were closer to $50 a barrel.
Goldman Sachs chief energy analyst David Greely said the recent run-up in prices, in which Brent rallied as much as 33 percent since the start of the year, looked overdone.
"While prices are back at levels of spring 2008, supply-demand fundamentals are significantly less tight," Greely said in an April 12 note emailed to clients.
"We believe that the market will experience a substantial correction toward our $105 a barrel near-term target for Brent crude oil in coming months," he stated.
Oil prices were down sharply, with Brent shedding more than $3 to trade below $121 a barrel by 11:25 a.m. EDT (1525 GMT). On Monday, prices hit a 2-1/2 year high of $127.02 before reversing.
U.S. crude futures were down $3.80 at $106.12 by the same time, extending Monday's near $3 slide.
THE GORILLA
"Goldman are the 800 lb gorilla in this market," said Matthew Bradbard, trader and portfolio manager at MB Wealth Corp in Hollywood, Florida.
"What they say tends to happen, and traders know this. After central banks and governments, Goldman are number two. Their releases are the next thing traders look for ... they're a big player with a strong track record," he said.
Goldman analyst Greely said that while unrest in the Middle East and North Africa remains a risk to oil markets, with Libyan exports already largely cut off, the price had been pushed too high by the large number of speculative traders currently long crude oil.
"Both inventories and spare capacity are much higher now and net speculative positions are four times as high as in June 2008," Greely said.
Goldman estimated in a research note on March 21 that every million barrels of oil held by speculators contributed to an 8 to 10 cent rise in the oil price.
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