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ETF Updates Archive

Choppy Waters for Traders

The past couple weeks have been choppy in the equities market. While the strong intraday moves are great for day traders, it is extremely difficult for swing/position traders who normally hold positions for 3-60 days in length, which is my focus. That being said, we are reaching a do or die point for the equities market and next week there should be a strong move out of this trading range.

On the volume side of things, we have been seeing distribution taking place. Heavy volume continues to step into the market unloading large amounts of shares. The interesting part is that the majority of traders are bullish and sentiment levels are at extremes.

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Long Term Trends

Trading with multiple time frames – every now and then it’s always a good idea to look at some different time frames to be sure you have a solid understanding for the longer term trends in play.

I will admit that it’s easy to get caught up in trading the shorter time frames like the 1, 10, and 60 minute charts especially when there are large intraday movements.

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Where's the Yield? (part one)

Portfolio yields are under pressure due to the worldwide flight to safety over the last few years, making conservative and income growth portfolios more difficult to manage. While bond investments made a few years ago have done historically well, new investments have greater principal risk with low historic yields. Some advisors have simply shifted from bonds into stocks, but for those truly in conservative and income growth risk classes, adding equities will increase the portfolio’s standard deviation, a common measure of risk, reducing the portfolio’s ability to soften the “blow” from the next crisis or even modern day volatility.

Investors should never chase yield, meaning simply buying the highest yielding product with no concern about who is paying the interest.

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Trading USO Options

At the risk of stating the obvious, the recent market action in the commodities has been manic with wild gyrations of price in a wide variety of basic materials, metals, and energy.

Given these wild fluctuations in price, I thought we could look at an options trade in USO that gives a high probability of success.

In order to give a bit of a conceptual framework for this sort of trade, let me share the way I look at these. Development of precision high altitude bombing during World War II resulted in a dramatic reduction in casualties while inflicting devastating consequences to enemy forces. I view the sort of option strategy described below as the equivalent of high altitude precision bombing.

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How Far Will Metals Correct?

The question everyone is starting to ask is how far will the metals correct?

Personally, I do not think they will drop much further but I do think it’s going to take 6-8 months before we see new highs in both gold and silver. They have had a nice run but now it looks as though they may cool off for a while. We could see some strength in the dollar for a little while and that should keep some pressure on metals even though inflation is clearly starting to show up around the world. Then the metals should start to climb the wall or worry again.

Below are my updated charts on gold, silver and the gold miners index. Not much has really changed from last week analysis other than both gold and gold miners are getting deeper into a resistance level forming a bear flag pattern.

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