Crude Oil Analysis Update

It’s been a while since the last free crude oil analysis (March 23: Next? A Crude Awakening for Oil Bears?).

The March 23 article noted that: “Commercial traders are starting to prepare themselves for further gains. Oil seasonality also suggests higher prices. Probably more important is a trend line that’s been important for oil prices for nearly two decades (this proprietary trend line and detailed oil seasonality chart reserved for subscribers of the Profit Radar Report). A move above this trend line is likely to trigger a rally.”

This important trend line is now in the rear view mirror, and I’m able to disclose it without conflict to my paying subscribers.

The green bold line in the crude oil futures chart below represents this trend line. It originates all the way back in 1998.

Since overcoming the bold green trend line, oil prices rallied as much as 33%.

Below is a summary of observations made in the Profit Radar Report since March:

March 29: “For aggressive traders, playing the long side (buy on dips) should ultimately prove profitable.”

April 8: “A close above 54.30 should bring more follow through gains.”

 

April 15: “Crude oil broke above 54 today. The breakout has legs as long as it stays above 54.”

May 6: “Oil prices are now gnawing on the resistance zone around 60. Yesterday’s red candle high may cause a pause. Next support is around 58.50, which could be an opportunity to buy.

Oil is trading around 58.50 right now. Based on seasonality, price may test support at 56 or 54.30 between now and mid-June (proprietary oil seasonality chart available to Profit Radar Report subscribers).

Overall, I anticipate oil prices to move higher as long as support at 54.30 holds.

Based on seasonality, buying oil ETFs like the United States Oil Fund (NYSEArca: USO) or iPath Crude Oil ETN (NYSEArca: OIL) before mid-June and/or around 54 – 56 (based on crude oil prices) is a trade worth watching.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

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Will European QE Send Stocks Soaring?

It’s not that we need a chart to show that QE pumps up Wall Street, but here is one anyway.

The obvious question is whether Europeans QE will do the same for European stocks as U.S. QE did for U.S. stocks.

Liquidity drives the markets, so the logically answer is ‘yes’.

However, there are a few other variables.

  • U.S. QE was unleashed when the S&P 500 was near 12-year low. European QE was announced when German and English bourses are at or near all-time highs.
  • The situation in Europe is more fragmented and complex than in the U.S.
  • The U.S. dollar was at a multi-year high when U.S. QE was launched. The euro is at a 11-year low.

Despite all the differences, European QE was received similar to U.S. QE. Here’s what one German politician said:

“QE makes the rich even richer. It is a drug for the stock market. It drives up stocks. But the money should flow in the real economy, not banks.” Sounds familiar, doesn’t it.

Here are a few headlines commenting on the ECB’s move:

  • MarketWatch: Why European QE is bearish for US stocks
  • Fortune: Larry Summers: The ECB’s QE won’t work
  • FoxNews: Five reasons why ECB won’t save continents dying economies

U.S. stocks rallied for years despite all the persistent haters (me being one of them).

The stage seems set for a European stock rally.

However, the Vanguard FTSE Europe ETF (NYSEArca: VGK) cautions buyers against rushing in. VKG is about to the reach double technical resistance.

This doesn’t mean it can’t go higher, but buying before a speed bump is rarely prudent. A breakout would be a better reason to buy (and it would offer a good stop-loss level). The charts for five other European ETFs look similar. View Top 5 European ETFs here

What about the regions strongest stock index? Germany’s DAX is trading at all-time highs, and is about 3% above important support at 10,000. Further gains are possible, but a close below 10,000 would put the QE rally on hold.

Unfortunately there’s no ETF that closely tracks the German DAX. The iShares MSCI Germany ETF (NYSEArca: EWG) is severely lagging behind the DAX. Otherwise it would be interesting to buy EWG and short SPY (S&P 500 SPDR) or go long the DAX with a stop-loss just below 10,000.

The U.S. QE experiment has taught us that it’s foolish to bet against the Federal Reserve or its international counter parts … and yet I have a tough time believing that European stocks will take off right away.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

3 Important Things to Know When Investing in ETFs

ETFs are cost effective, tax efficient, liquid and can be traded throughout the day (unlike mutual funds). Most investors are familiar with the appealing ETF basics, but here are a few tricks and traps the average Joe investor may not know.

ETFs (Exchange Traded Funds) have been called the best thing since sliced bread.

The ETF universe has ballooned to well over 1,300 ETFs, controlling nearly $2 trillion in assets. The $15 trillion mutual fund industry is less than thrilled about the splash ETFs made in their investment pool.

ETFs are popular for a reason, but this article addresses not only the ETF basics, it also reveals some tricks and traps the average investor may not be aware of.

ETF Basics

Know what’s under the hood: The initial success of broad market ETFs, like the SPDR S&P 500 ETF (NYSEArca: SPY), sparked much innovation and the need for additional ETF structures.

Today there are five different ETF structures, each with its own pros, cons, and tax treatment. In fact, in recognition of this diversity, what used to be called the ETF universe, has become the ETP (Exchange Traded Product) universe.

A detailed look at the different structures along with advantages and disadvantages is available here: Basic ETF Structures Explained

Diversification:  Most ETPs provide exposure to a basket of stocks or bonds. Most often that basket is linked to an index.

Some ETPs screen their holdings based on certain filters, are actively managed or designed to track the performance of commodities, currencies are other assets classes.

Cost & Tax Advantages: There are exceptions, as you would expect in any group numbering over 1,300, but ETPs in general are more cost and tax effective. The cheapest S&P 500 ETFs costs only 0.05% per year.

Liquidity: ETPs sell like stocks and can be instantly (assuming the market is open and you have a brokerage account) bought or sold with the click of a button. Mutual funds are redeemed (time delay is at least a few hours), often at a price that has yet to be determined.

ETF Tricks & Traps

Like every other investment, ETPs don’t come with a built in protection against moronic decisions.

The emergence of short, leveraged and leveraged short ETPs actually makes it easier for investors to lose (and make) money even faster. The epitome of a two-edged sword.

Due to the structure of short and leveraged ETPs, the odds of landing a profitable trade are not always 50/50.

Some leveraged (short) ETPs have a tendency to enhance returns in a down market, others in an up market. Sideways markets may deliver unpredictable returns, even returns unrelated to the underlying benchmark.

For example, the popular but notoriously declining iPath S&P 500 Short-term VIX ETN (NYSEArca: VXX) has been a trap for many investors.

The first chart below plots VXX against its benchmark, the VIX. I’ve inserted a 50-day SMA to show the basic trend. VXX has been down even though VIX has been trading predominantly sideways.

The second chart plots VelocityShares Daily Inverse VIX ETN (NYSEArca: XIV) against its benchmark, which is also the VIX.

You probably get the point. The choice of ETPs can influence the odds of winning beyond the normal odds dealt by the market.

More details about the subtle, but important idiosyncrasies of ETPs is available here: The Must Know Basics of Short & Leveraged ETFs

Know Thy ETF Universe

With over 1,300 ETPs comes the freedom of choice. The following criteria should be considered when on the prowl for the best ETP:

  • Cost
  • Trading volume
  • Performance track record
  • Structure and tax advantages/disadvantages
  • Tracking method (sampling or replication) and accuracy

ETPs also offer exposure to asset classes and currencies that, in the past, used to be off limits for the average investor. So take a stroll through the ETP universe. You may find asset class ‘galaxies’ that may harmonize with your portfolio on planet Earth.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF to get actionable ETF trade ideas delivered for free.

10 Hottest ETFs For December

Hot or not? How can you buy ‘hot’ ETFs without ending up with a hot potato? Obviously there’s no foolproof way to eliminate losers before they spoil your portfolio, but here is a list of the 10 hottest ETF screened according to ‘hot potato risk.’

How can you buy a hot ETF without ending up with a hot potato?

Although there’s no foolproof protection (don’t shoot the messenger) against “today it’s hot, tomorrow it’s not” portfolio decisions, there are things that can be done to separate the wheat from the chaff.

Here’s a look at some of the hottest Exchange Traded Products (ETPs; include ETFs and ETNs) around. The list at the bottom of this article shows which ETPs have the potential to remain (or turn) hot throughout December.

VelocityShares Daily Inverse VIX Short-term ETN (XIV)

This is the best performing non-leveraged ETP over the past three years, up 546.23%. XIV is the inverse counterpart of the popular iPath S&P 500 VIX Futures ETN (NYSEArca: VXX).

Unlike VXX, XIV actually benefits from contango at times of low volatility. Over time this benefit of contango averages about 0.25% per day (click here for an explanation of contango).

VIX seasonality is pointing lower for another few weeks, but things may get a bit rocky for the VIX and XIV thereafter. XIV is a quick mover, but buying XIV at times of significant VIX spikes tends to deliver nice returns.

iShares Russell 2000 ETF (IWM)

IWM is by no means a top performer going into December, however, starting in mid-December, small cap stocks often outperform large cap stocks.

A low-risk strategy to profit from this potential small cap outperformance is this pair trade. Buy IWM and short the S&P 500 ETF (SPY).

VelocityShares 3x Inverse Crude Oil ETN (DWTI)

DWTI is the hottest ETP over the past four weeks, up 31.53%. Crude oil prices just sliced to the lowest level since May 2010.

Although trade is stretched to the down side, and – like a rubber band – oil may rally at any given time, the crude oil chart does not yet display the classic signs of a major low.

It appears that new lows are still ahead, but milking DWTI at this stage may be a bit greedy. Hey, but there’s nothing wrong with enjoying the trip to the pump for a change.

ProShares UltraShort Silver (ZSL) – iShares Silver Trust (SLV)

The 2x leveraged short silver ETF (ZSL) is up 32.20% over the past three months, but ZSL has ‘hot potato risk’ written all over it.

Silver futures painted a massive green reversal candle on Monday. Now may be the time to trade in ZSL for the iShares Silver Trust (NYSEArca: SLV).

iShares Nasdaq Biotechnology ETF (IBB)

Biotechnology is the best performing sector year to date, up 31.42%. Investing in biotech is always a bit of a gamble, but the trend for IBB is up as long as support at 300 and 275-280 holds.

Coffee ETFs

A look at coffee prices may explain why your Starbucks venti, half caff, one-pump, skinny, soy latte with extra whipped cream costs more than 5 bugs.

It also explains why two coffee ETPs made it into this year’s list of top 5 hottest non-leveraged ETFs:

  • iPath DJ-UBS Coffee ETN (NYSEArca: JO) +61.34%
  • iPath Pure Beta Coffee ETN (CAFE) +56.84%

Will JO and CAFE continue to caffeinate portfolios or is there risk of a sugar crash? A combination of chart analysis and cycles suggests this low-risk strategy: Buy JO and/or CAFE on a 10% pullback.

‘Big Picture’ ETFs

Drum roll please! Here are the top three ETFs of the past 5 years:

  • ProShares Ultra Consumer Services ETF (NYSEArca: UCC) +493.70%
  • Direxion Daily MidCap Bull 3x ETF (NYSEArca: MIDU) +458.23%
  • ProShares UltraPro S&P 500 ETF (NYSEArca: UPRO) +455.29%

Nine of the top 10 best performing ETFs are leveraged U.S. equity ETFs.

This raises the mother of all ‘hot or not’ questions: Are U.S. stocks a hot potato? Is this massive bull market (almost) over?

Ask ten different analysts and you’ll probably get ten different answers. When analyzing stocks, I find it best to leave my ego at home and simply look at the facts.

Obviously different analysts look at different facts (many of which are just biases). I like to look at the indicator that correctly foretold the 1987, 2000 and 2007 tops. The same indicator continued to point higher from 2009 until today (click here for more details on this indicator I call ‘secret sauce‘).

In a nutshell, the stock market is showing signs of aging, but a major S&P 500 or Dow Jones top appears still months away. There’s still time to hold some potatoes before they get too hot. However, most investors should consider using non-leveraged vehicles like the S&P 500 SPDR (NYSEArca: SPY) and Dow Jones Diamond (NYSEArca: DIA).

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

3 Perils of Chasing Red Hot ETFs

Few things are worse than watching an ETF that was on your mental buying list – but not in your actual portfolio – go up … and up … and up. It’s always tempting to chase performance, but here are three risks and one solution.

The seven most notorious words of the financial industry: “Past performance does not guarantee future results.”

In other words, anyone buying a hero and ending up with a zero has no one to blame but him or herself.

+65%, +55%, +38% are the digits of the three hottest ETFs right now (based on 3-month return). Does it make sense to chase those ETFs?

The trend is your friend until it bends, so chasing ETF hot shots isn’t always a terrible idea, but being aware of three common pitfalls may reduce embarrassment at the water cooler investment chat.

Peril #1: Leverage

Leveraged ETFs usually crowd out any ‘Top 10” performance list. Leveraged ETFs are ETFs on steroids. Currently 9 out of the 10 best performing ETFs are leveraged or leveraged short ETFs.

Leverage can be a blessing and a curse. It’s important to know that leveraged ETFs -like carnival mirrors – always skew the real condition of the underlying sector. For more details on the dangers and delights of leveraged ETFs click here: The Must Know Basics of Short and Leveraged ETFs

Weeding out all leveraged (short) ETFs and zooming in on ‘pure ETFs’ will offer a more accurate picture of the best performing sectors and their ETFs.

Peril #2: FOMO

FOMO (fear of missing out) is a powerful motivator, but it’s a terrible reason to buy. If the sole reason for buying a hot ETF is fear of missing out on more gains, it’s probably a bad idea. FOMO is not an investment strategy.

Strong momentum, persuasive fundamentals, or yet unreached up side targets are better reasons to buy an ETF that’s already trading well above its low.

Peril #3: Performance Chasing & Trend Reversals

Here’s a real life example of the perils of performance chasing.

Gold was one of the hottest assets in Q1 2014, but one of the worst performers in Q3.

The SPDR Gold Shares ETF (NYSEArca: GLD) was up as much as 15.13% in March. It’s fallen as much as 17.96% since. The VelocityShares 3x Long Gold ETN (NYSEArca: UGLD) was up as much as 50.69%, followed by a 46.95% drop.

Burnt trend chasers still hear the ringing of those chewed out Wall Street phrases in their ears:

“Past performance is no guarantee of future results”

“The trend is your friend until it bends”

The key question is how you can tell how long a trend is to last.

The gold chart features an observation made by the Profit Radar Report on March 12, three trading days before gold rolled over: “Gold has now reached our initial up side target at 1,365. RSI is lagging price and traders are quite bullish on gold. We are looking to short around 1,400.”

Bullish sentiment and chart resistance capped gold’s up side in March (blue circle).

It appears that bearish sentiment and chart support ended gold’s slide on November 7.

Having a pulse on investor sentiment and technical support/resistance levels does not guarantee winning trades, but it generally prevents against joining the performance chase at the worst of times.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Simon Says: 3 Most Contrarian ETFs to Own Right Now

Here are three contrarian picks for die-hard contrarians and those who missed the latest stock market rally. Two trades are true bottom pickers, one trade is 2x contrarian, which almost makes it a mainstream trade.

If contrarian investing came with a label, it might as well be ‘no guts, no glory.’ It takes guts to bet against the crowd, but it can pay off big.

I use sophisticated software and crosscheck with basic media sentiment (headlines) to identify extreme sentiment delights for contrarians. Here are my top three choices:

Gold Anyone?

Gold prices have dropped almost $800 since September 2011, and according to many pros, gold will shed another $300 – $400. Here are a few recent doom and gloom headlines:

  • “A final purge to $700? What gold bulls surrender might look like” – Nov. 12
  • “Here’s why gold could be headed to $800” – Nov. 12
  • “Gold bulls beware: More pain coming” – Nov. 10

If gold is going to drop another few hundred bugs, why would anyone hold on to it? That’s the crux of contrarian investing. In the midst of extreme pessimism, there are not enough sellers left to drive prices much lower.

It appears that gold is at or near this point, often called the ‘puke point’. Gold ETFs like the SPDR Gold Shares (NYSEArca: GLD) and iShares Silver Trust (NYSEArca: IAU) are likely to surprise many to the up side.

Fill up The Car Honey

According to the U.S. Energy Department, low gas prices aren’t going away anytime soon. I don’t recall the Energy Dept predicting a 30% drop a few months ago, but that’s what happened.

According to one ‘pro’ interviewed on CNBC, gas may drop to $30.

Catching a bottom in oil prices is a bit like catching the proverbial falling knife, but simply based on investor/media sentiment, this slippery, oily knife is closer to the kitchen floor (a bottom) than the hand that dropped it (top).

The United States Oil Fund (NYSEArca: USO) and Energy Select Sector SPDRs (NYSEArca: XLE) are two ways to play a bounce.

The Ultimate 2x Contrarian Trade?

Back in May I noticed, and reported on, the unusual amount of bearish media coverage. Russ Koesterich (chief investment strategist at BlackRock), Wilbur Ross (billionaire investor), Carl Icahn (billionaire investor), David Tepper, Marc Faber and Peter Schiff predicted a serious correction or outright market crash.

In the spirit of no guts, no glory, I wrote back then: “Here’s a message for everyone vying to be the next Roubini: A watched pot doesn’t boil and a watched bubble doesn’t burst.”

Some of the recent headlines make we wonder if we’re in for a May/June repeat:

  • “Sentiment is ‘off the charts’ bullish” – Nov. 12
  • “Don’t get suckered by stock market winning streak” – Nov. 12
  • “Marc ‘Dr Doom’ Faber: I will soon be proven right” – Nov. 13

Yes, sentiment polls show excess optimism, but can it still be considered a contrarian indicator if everyone reads about it? Will two negatives make a positive?

Another factor to keep in mind is that actual money flow indicators do not confirm sentiment polls. Investors don’t seem to be putting their money where their mouth is.

Therefore, owning stocks into next year may be more of a true contrarian move than selling stocks. Instead of owning broad market ETFs like the S&P 500 SPDRs (NYSEArca: SPY), I would probably opt for certain sector ETFs that offer more up side.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Increasing Buying Climaxes Hit Popular Highflying Names

Posted on iSPYETF.com on December 10:

We’ve taken a look at total U.S. buying climaxes several times this year and the broad market usually declined shortly thereafter. More intriguing than the total number are some of the individual buying climaxes, which include some highflying stocks that shouldn’t be on the list, especially right now.

We’ve looked at buying climaxes several times this year and every time stocks corrected shortly thereafter.

Although last week’s elevated tally of 168 buying climaxes may not have an immediate impact this time around, it carries more intrigue than previous readings, simply because they include some of Wall Street’s darlings.

Buying climaxes take place when a stock makes a 12-month high, but closes the week with a loss. They are a sign of distribution and indicate that stocks are moving from strong hands to weak ones.

Total Buy Climaxes

The chart below plots the S&P 500 against the total number of buying climaxes reported by Investors Intelligence. The universe of stocks and ETFs traded on U.S. exchanges produced 168 buying climaxes.

As the S&P 500 / buy climaxes chart shows, the current reading viewed in isolation isn’t a sell signal.

Individual Buying Climaxes

More interesting than the total climax tally are some of the individual names.

Even though t’is the season to be shopping, Amazon saw a weekly red candle (equivalent of a buying climax).

Amazon isn’t just any stock. It’s one of the prime recipients of the ‘holiday spirit,’ a recent rally leader and the third largest component of the Nasdaq-100 and Nasdaq QQQ ETF (Nasdaq: QQQ).

Visa is another casualty of last week’s buying climax report. With a weighting of 8.09%, Visa is the biggest component of the Dow Jones (NYSEArca: DIA). Visa may also be a reflection of holiday spending (who doesn’t use their credit card).

Next in line is Wal-Mart, the retail juggernaut and Dow Jones component.

Rounding up the ‘fab four buying climaxes’ is Goldman Sachs, the third biggest component of the Dow Jones.

Summary

Three Dow components – accounting for 18% of the entire average – produced buying climaxes last week.

Three major retailers, supposedly prime beneficiaries of holiday spending, saw weekly reversals.

Such divergences between leading stocks and the major indexes may be an indication that the stock market is fatigued and getting ready for a nap, but when?

Here is a short-term analysis of the S&P 500 and Dow Jones. S&P 500 and Dow Jones Short-term Forecast with a Twist

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. We are accountable for our work, because we track every recommendation (see track record below).

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.