MarketsMuse.com update courtesy of coverage by TheStreet.com
Investors should avoid the Utilities Select Sector SPDR ETF (XLU) despite the recent dovish talk by Federal Reserve Chair Janet Yellen, said Mohit Bajaj, Director of ETF Trading Solutions at WallachBeth Capital. Bajaj added that rising rates will hurt the XLU because power companies are levered to debt financing which will become more expensive. He is also bearish on the SPDR Barclays High Yield Bond ETF (JNK) due to the potential for rising rates and problems in the energy sector. On the other hand, Bajaj is bullish on the Financial Select Sector SPDR ETF (XLF) because the large-cap banks will benefit from rising rates and have passed their stress tests. Below is the video interview..
Tag Archives: xlf
US Equities: Lower Is More Likely Than Higher: A RareView Global Macro View Point
Below is excerpt from opening lines of today’s edition of “Sight Beyond Sight”, the macro-strategy commentary courtesy of Stamford, CT-based think tank Rareview Macro LLC. Our thanks to firm principal Neil Azous for the following observations.
Model Portfolio Update: Significantly Reduced Equity Net Long Exposure
Our inspiration level today is almost as low as the price of gold – that is, close to touching a low for the year.
We are struggling to find a meaningful macro catalyst or new top-down theme. None of the specific ideas we have analyzed recently are an “A Trade” and we will not deploy them ourselves, or ask you to either. The risk-reward in the short-term in many consensus themes are up 1 and down 2, not the profile of up 3 and down 1 that in the past we have always looked for.
In fact, we are finding that the psychology that has driven us all year is dissipating and for the first time we are more concerned about giving back performance in the model portfolio than generating further profits.
In the absence of a new opportunity, and following a period of healthy outperformance, a dilemma has arisen for us – markets/positions by nature mean revert. Now everyone has their own metric they watch for, and their own threshold for the mean reversion in their portfolio to start with. But let us just say that ours has been breached and it has served us well in the past to pay attention to that.
Now that may not be the case for many of you, and if we were in your position there is little question we would be pursuing the same ideas/themes in order to catch up with our benchmark. For today, we have little to offer you. However, like the Homebuilder seasonality and beta observation made yesterday (reminder BZH reported this morning and is in small cap basket we presented), we will continue to highlight ideas as and when they arise.
So in that spirit, we significantly reduced our net long equity exposure. Continue reading
Professional Traders Lining Up to Sell SPX For the Wrong Reasons: Be Wary of the Good Idea Fairy: A Rareview View
Below commentary is courtesy of extract from a.m. edition of today’s Rareview Macro’s “Sight Beyond Sight”
A Simple View: US Dollar, Gold, SPX, UST’s
The objectives we have laid out continue to materialize across the themes we are focused on.
The Q&A session with President Mario Draghi following today’s European Central Bank (ECB) meeting has concluded. We will leave it to the people with PHDs to debate the intricacies of what he had to say. But if price is the voting machine that always tells you the truth, then the weakness in the Euro exchange rate highlights that the press conference was simply dovish. Expect these same PHD’s to keep chasing as they lower their price targets again.
As evidenced in our most recent editions of Sight Beyond Sight, there was little doubt that Draghi would not strike a dovish tone. With his emphasis on a unanimous vote for further action if necessary and formally adding in the notion that the ECB’s balance sheet will return to 2012 levels (i.e. ~1 trillion higher), Draghi did a good job of walking back the negative tone that the media have tried to portray over the last 48-hours, especially the speculation about an internal battle/dissent/revolt building up against Draghi.
For us, it was never about whether the professionals sold the Euro after the event. They were going to do that anyway as the trading dynamics continue to point towards the Euro buckling under its own weight regardless of what Draghi says. Instead, we were more focused on a short covering event not materializing ahead of tomorrow’s US employment data and that has been largely removed for today.
So those bearish have to contend with the following factors: Continue reading
A Rareview Macro View: “There’s NO Gold in Them Thar Hills”
It was in early 1849 that the director of the Mint at Dahlonega, Dr. M. F. Stephenson spoke from the steps of the mint building in a futile attempt to convince the miners to remain in Georgia to mine rather than to flock to California to chase what might be an impossible dream. “There’s gold in them thar hills, boys,” he shouted as he pointed at the hills surrounding Dahlonega.
Below commentary is courtesy of today’s a.m. edition of Rareview Macro’s “Sight Beyond Sight”
Gold is showing the largest negative risk-adjusted return across regions and assets.
The pre-market price in SPDR Gold Shares (symbol: GLD) is ~126.40. The volume-weighted-average-price (VWAP) from June 19th until last Friday’s close is 127.0392.
We use June 19th as the starting point because that is when the IRAQ-ISIS conflict registered its loudest decibel level and Brent Crude Oil made its high and Gold broke above the April-May period.
The technical support levels are illustrated below but the first one was breached so far on an intra-day basis. A move closer to 1300 would suggest longs just became trapped. Continue reading
ETF Trading Desk Head Says: “Risk is On…Today..”
Courtesy of the ETF Professor at Benzinga.com
U.S. equities and other riskier assets are in rally mode in the first trading session of 2013 after lawmakers finally got around to agreeing on legislation that steered the U.S. away from the dreaded fiscal cliff. News that a deal was in the works ignited a rally on Monday while news that the cliff will be dodged has done the same today as the Dow Jones Industrial Average is up about 230 points at this writing while the Nasdaq Composite is sitting on a gain of 2.3 percent.
The tenor of Wednesday’s U.S. trading session is clearly risk on, so much so that before 10:30 AM Eastern time, the overall value of equities and ETFs traded was $73 billion, according to data provided by ETF execution firm WallachBeth. New York-based WallachBeth noted that only trading day in all of 2012 – December options expiration – saw equity value traded exceed $70 billion in the first hour of trading.
In a note to clients, WallachBeth Director of ETF Execution Services Chris Hempstead highlighted intense buying activity “on the ask” in several marquee broad market ETFs. Buying on the ask could be described as “panic buying” to some extent as traders that are willing to buy on the ask price being shown are indicating they are willing to pay up to acquire shares of a particular stock or ETF. The more times the ask price is hit, the more intense a rally becomes.
Goldman Highlights ETF Correlations (XLF, XLK, XLU)
By Benzinga.com
In a note out today, Goldman Sachs GS +1.96% said investors are continuing to increase usage of ETFs as hedging tools, a move that is “creating unintended consequences to their portfolios.” Goldman notes that managers and analysts are increasingly creating less-than-desirable hedges due, in part, to surprisingly high correlations among some sector funds.
“We see high trailing 3-month daily correlations among less-than-obvious pairs of sectors, including: Financials & Industrials, Tech & Discretionary and Materials & Discretionary,” Goldman said.
The recent performances of the various Select Sector SPDR funds indicate that Goldman’s note highlights valid points. In the past three months, the Financial Select Sector SPDR XLF +1.43% is down 9.7% compared to 8.8% for the Industrial Select Sector SPDR XLI +0.86% . The three-month gap is wider between the Technology Select Sector SPDR XLK +1.06% and the Consumer Discretionary Select Sector SPDR XLY +0.98% , which are down 5.8% and 3.3%, respectively. Over the past three months, the Materials Select Sector SPDR XLB +1.16% is down 7.5%.
“Indeed, of the 36 sector ETF pairs we examined, correlations on a 3-year basis are higher than 70% for 31 of the instances, emphasizing the importance for portfolio managers to choose sectors wisely when hedging at specific points in time,” Goldman said in the note. Continue reading
Popular ETFs You Should Never Use..
Courtesy of CNBC..By: Lee Brodie
Exchange traded funds are among the more popular ways to trade. Called ETFs on the Street they allow investors to diversify risk through a basket of stocks.
A pro like trader Steve Grasso of Stuart Frankel who works on the floor of the NYSE, can barely move a foot or two without hearing “Buy the XLF or get me out of the GLD, now!’
But these and other popular ETFs may not always be your best bet.
According to Matt Hougan, IndexUniverse president of ETF analytics, there are alternative ETFs that aren’t as widely known, but may actually better serve your needs. He profiled five of them on CNBC’s Fast Money. They follow:
Sector Widely Traded
Gold GLD
Hougan’s Alternative: IAU
Looking at the GLD, Hougan says the IAU holds exactly the same thing. “It’s plenty liquid and owning it is about half the cost of the GLD.”
Sector Widely Traded
Financials XLF
Hougan’s Alternative: IYF
Hougan says this is something of a popularity content. “People know the XLF .” However, the XLF only tracks large caps. (Click here to see top holdings on Yahoo! Finance.) If you want exposure to the entire banking sector Hougan recommends the IYF for “the full spectrum.” Continue reading
Direxion Files Plans to Introduce Another Bearish Bank ETF (FAZ, FAS, XLF)
By Benzinga.com
Direxion, the firm behind the behind the infamous yet highly popular Direxion Daily Financial Bear 3X Shares FAZ +0.64% , is looking to add its lineup of non-leveraged products and has filed plans with the SEC to possibly introduce the Direxion Daily Financial Bear 1X Shares.
The Direxion Daily Financial Bear 1X Shares would not be a direct equivalent to FAZ because the new ETF, assuming it comes to market, will seek daily inverse investment results that correspond to the Financial Select Sector Index, the same index tracked by the Financial Select Sector SPDR XLF -0.11% .
FAZ and its bullish equivalent, the Direxion Daily Financial Bull 3X Shares FAS -0.69% , track the Russell 1000 Financial Services Index. Direxion’s filing didn’t include a ticker for the new fund, but the firm did say the fund will trade on the New York Stock Exchange and have an expense ratio of 0.65%.
That’s 30 basis points lower than what FAS and FAZ charge. The new Direxion fund could be a rival to the ProShares Short Financials SEF +0.17% , which is an inverse, non-leveraged product. ProShares, the largest issuer of inverse and leveraged ETFs, also issues the ProShares Short KBW Regional Banking KRS -2.70% , which is also a bearish, non-leveraged ETF.
Direxion, the second-largest sponsor of inverse and leveraged funds, has been looking to expand its non-leveraged offerings. The firm has introduced the the NASDAQ-100 Equal Weighted Index ETF QQQE -0.58% and the Direxion All Cap Insider Sentiment Shares KNOW +0.36% , among others in the past year.
(c) 2012 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Expert ETF Trader: Liquidity Is There; Just Look Beyond the Screens
Other than the ETF market “go-go names”, one of the more commonly-voiced, and according to many, often-misguided observations regarding most ETFs is “won’t trade it, there’s no liquidity in that name,” or “the screens are only showing 1000 shares offered and I have to pay up 50 cents to buy a lousy 25,000 shares?!”
As a consequence, any half-smart portfolio manager often quickly (if not wrongly) concludes that the “lack of liquidity cost” is a deterrent to their positioning what is otherwise a very compelling “basket” of underlying securities.
The editors here don’t buy into the lack of liquidity notion, and after getting our hands on desk notes published today by Chris Hempstead, Head ETF Trader for WallachBeth Capital (one of the more prominent players in the ETF space), we couldn’t resist the opportunity to re-publish.