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Hottest ETFs on the Move

July 17th, 2010

It was a tumultuous week in the market with events ranging from the Goldman settlement and disappointing earnings elsewhere in Financials to Apple’s mea culpa to less than stellar jobs numbers.  Broader indices ended the week slightly down with the S&P500 (SPY) losing 1.2% and the NASDAQ (QQQQ) losing 0.6%.  Volatility picked up and the Euro started to pare back losses as fears over a dissolution of the Euro started to subside in the face of various Austerity Measures (EU country by country comparison) moving forward.  With that backdrop, I always like to highlight both the best conventional ETFs and Leveraged ETFs of the week so as to realistically portray the happenings in the market on an unleveraged sector basis:

Hottest Non-Leveraged ETFs:

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TZA – Direxion Daily Small Cap Bear 3X Shs – Up 7% – Given that small caps are notoriously more volatile than the broader market, it stands to reason that in a down market week, TZA should have a strong showing. Small cap investors are still concerned over the lack of access to credit, what impact the health care reform mandates will have on small businesses and the return of the consumer. So, any bad news sends TZA spiking.

SMN -ProShares UltraShort Basic Materials – Up 7% - Given the similar theme of negative market sentiment during the past week, it didn’t bode well for basic materials prices. With housing stagnant and various stimulus programs winding down, investors are fearing stagnant materials prices for everything from concrete to copper wiring demand.  If concerns over housing and economic growth persist, it may be worthwhile to consider high yield utility stocks for lower volatility and high dividend payouts to ride out further volatility.

FAZ - Direxion Daily Financial Bear 3X – Up 7% – FAZ is a common participant on this list alongside its counterpart, FAS (Long). Financials have been incredible volatile from 2008 onward given the precipace of collapse and then the stellar recovery off those lows in 2009. This week was a volatile one given Goldman’s (GS) settlement over its behavior related to mortgage backed securities sales that many analysts and pundits alike hailed as surprisingly low. While Goldman rallied 6% on the week, Bank of America (BAC) tanked 8% due to lackluster earnings, taking much of the banking and investment house sector down with it.  Even in the face of astounding low mortgage rates including a shrinking jumbo spread (current best rates in your area), housing just isn’t moving the dial and many investors fear with the expiration of the new homebuyer tax credit and a recent report outlining a massive drop in credit scores of Americans this year, we’re looking at a new leg down in housing, which could crush Financials again, especially in the loan loss bucket.

Hottest Leveraged ETFs:

VXX – iPath S&P 500 VIX Short Term – Up 7% – The “fear index” was up this week on investor sentiment, especially with a big down day on Friday where most of the gains from the week came from (up over 6%).  VXX can spike upwards of 20% on a given day, but this is really an inverse play on the market at large.  In general, VXX will surge in a down market, and as investor complacency sets in, VXX will gradually dip lower as the market rises.

GXG – Global X InterBolsa FTSE Colombia20 – Up 4% - Colombia, one of the Frontier Markets (see next ETF reviewed below) has been performing quite well year to date, at a 28% gain vs. a 4.5% loss for the S&P500. Investors view the country as pro-growth, pro-business and conditions have improved dramatically over the years from the cliche crime, kidnappings and drug trade. Business is strengthening and Colombia doesn’t have the same debt woes as the developed nations.

FRN – Claymore/BNY Mellon Frontier Markets - Up 1% - With the backdrop of a small loss in US equities, this Frontier Markets ETF was able to squeeze out a gain.  Unlike past debt implosions, rather than the emerging markets (and in this case, the further removed frontier markets) acting as a catalyst for a global panic due to debt problems, this time around, it was developed markets.  Investors aren’t ignoring that the balance sheets of many of these countries actually look healthier than those of the US, Europe and Japan.  Year to date, FRN has returned over 4% while SPY has lost over 4%.  See full review of the Frontier Markets ETF for more background on holdings and performance.

Disclosure: Author is long GXG as a long-term hold. Author does have a market neutral short leveraged ETF position in FAS/FAZ.


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