In Defense of Leveraged ETFs ~ The Risk Averse Alert

Tuesday, August 04, 2009

In Defense of Leveraged ETFs

Sleepy, dreamy, summer time in the city. About that C wave I mentioned yesterday...

Take a look at the NYSE McClellan series. The Summation Index confirms $NYA's push into new high ground, post-March bottom. Remember this when you look at the NASDAQ McClellan mumbo jumbo (hat tip, Mr. Shemp). Even in this, the market's dying breath, $COMP fails to lead.

So, it only appears tech is leading the charge higher. However, $COMP's further reach has been achieved with relatively less participation than on the NYSE.

Contrasting the two McClellan views, then...

NASDAQ continues displaying that element of fearless complacency I've highlighted recently — laggards not driving $COMP higher are being held, riding the coattails of relatively few leaders, rather than increasingly being sold.

The NYSE is the scene of a patient distribution from strong hands to Action Alerts Plus ... and probably some to those cursed leveraged ETFs! Momentum here is fading. Likewise, the NYSE volume trend is confirmed by the McClellan Oscillator.

My two cents on the attack being waged against leveraged ETFs...

What are they, two times, three times leveraged? What is that to thirty times leverage when thirty times is forced to shrink?

It is EVERYTHING! Investment houses would not have gone to thirty times leverage were they not behaving like such pigs. They were and they still are. Only now the little guy is being hoodwinked to accept the wisdom of straight equity.

The man is trying to maintain appearances exercising his multi-media mob mentality muscle. Even a dumb box of rocks like me can see through their desperation. Appearances cannot possibly be improved squeezing fleas from leverage. The damage is done. What's gone (wildcat finance) cannot possibly be restored. And until we agree a bankruptcy reorganization is necessary, then don't take away the power leveraged ETFs offer risk averse investors when extraordinary vulnerability to the entire asset class called equity is bearing down on us all.

Hey, I've got a surprise coming. It's an opportunity to take a zero risk shot at turning $100 into $10,000 during the upcoming period whose projected volatility could easily see your stake go much higher. Zero risk as in this won't cost you a thing. More on this soon...

Fast Money
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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

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