by Rani Chopra, SmartStops.net contributor
The market has experienced unprecedented volatility and investors are getting more risk averse than ever before with equity fund outflows exceeding $61 billion since the start of May. The CBOE Market Volatility Index, (VIX) considered to be the markets fear indicator, continued to fall yesterday and is now down 12%.
Investors did not care whether they were invested in stocks, bonds, mutual funds or ETFs. Fear and uncertainty caused outflows across the board and gold became a safe haven, with gold prices rising over 24%.
In the midst of all the market turmoil, with the downgrade of the US debt and the continual downtrend of the US dollar, investors have turned to the Swiss Franc as a safe haven. The Swiss Franc is up more than 37% against the dollar compared to a year ago and has managed to rise against all major currencies amidst the fiscal problems of the Eurozone. The currency is also up 20% against the Euro from the start of the year.
Read the rest at: http://seekingalpha.com/article/287876-swiss-franc-remains-the-safest-currency-as-long-as-europe-s-debt-problems-continue
Are VIX ETFs Breaking Out? originally published at ETFTrends
Some traders have been keeping a close eye on the CBOE Volatility Index as a possible “tell” that the rally in risk assets since March 2009 may be due for a breather.
That’s why the VIX’s move above its 200-day moving average Wednesday drew the attention of investors with a technical bent.
The index, which measures the implied volatility of options contracts on the S&P 500, has been relatively subdued during the market’s recent rocky stretch. The benchmark is known as Wall Street’s favorite fear gauge.
However, the VIX was up 18% in the final hour of U.S. trading Wednesday to its highest level since March.
The largest exchange traded product following VIX futures, iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX), rose 8%.
In stock ETFs, a Nasdaq-100 fund was pushed below a key indicator in Wednesday’s sell-off. [Nasdaq ETF Lower]
CBOE Volatility Index
By Raghu Gullapalli, contributing writer
Just this morning an absolutely abysmal jobs report was released. This latest news on top of the steady stream of poor economic reports over the past week will no doubt conspire to push the market down. The S&P 500 is down to 1,300 levels and may well seek out the long-term support at 1,250. And on top of all this domestic turbulence, lies the desperate situation in the Eurozone and their dealings with the PIIGS; Portugal, Ireland, Italy, Greece and Spain.
Economists of all stripes are talking about a double dip recession and under those circumstances you would think there would be a flight to the security of precious metals. While recent increases in margin requirements may reduced the fervor for such investments than in recent months, it will not completely dampen the enthusiasm of many for Exchange Traded Funds (ETF) that can be erstwhile proxies. After all in the midst of all this new terrible news, what is the dollar doing? Tanking!
Much of the speculation has been shaken out of the Silver trade, especially after the dramatic 30% pullback from its all time highs in the first two weeks of May. Despite these more reasonable prices, and its recent range bound state, there has been little or no appetite for Silver. iShares Silver Trust (SLV) is continuing to trade below its 55 day moving average but comfortably above the 210 day moving average. Smartstops has the short-term stop at $33.09 and the long-term stop at $32.58
In contrast to Silver, Gold has not altered the direction of its movement significantly on the long-term chart. If you look at the SPDR Gold Trust (GLD), five-year chart, the price of the ETF is in a strong upward channel and despite the volatility in early May looks to continue its longer-term trajectory. This supports the opinions of many analysts and Gold bulls that project $1,600 Gold by the end of 2011 and may even lend credibility to the idea of $2,000 gold. Smartstops has the stop price of GLD at $146.84
We couldn’t agree with some of the commentary from this article in Financial Advisor Magazine. Its why we created SmartStops.
The broader message is that indexing is moving past the standard beta carve-ups, such as small- vs. large-cap equities and value vs. growth stocks. A new era of factor-based indexing is dawning… Among the catalysts for the new indices is the growing use of factor models, says Rolf Agather, director of index research at Russell. “As investors become more sophisticated, they’re using risk factor models to have a better understanding of their risk exposures.” Elevating risk management to a high priority, in other words, is the new new thing. “Many investors are realizing that using a traditional framework built around countries, sectors or styles doesn’t always provide the insights for appropriately managing risk,” he explained in an e-mail. “Investors are looking for new ways to manage their risks more directly.”
Beyond One Beta
A key motivation for targeting multiple risk factors in portfolio design is recognizing the limits of using just one.
The broad market beta does the heavy lifting for explaining the link between risk and return, according to the capital asset pricing model (CAPM). (CAPM is Robert Merton’s invention) . But if CAPM worked as promised, one beta would suffice for explaining risk and return. More exposure to market beta would bring higher return; less exposure would mean lower return.
CAPM’s embedded message: Don’t waste your time with factors other than market beta. It’s an elegant story, and it simplifies portfolio design and management—if it works. But it doesn’t, at least not completely
Even if you have the stomach for sitting tight over ten or 20 years, the risk and return story isn’t as simple as CAPM suggests. Decades of empirical research show that there are other risk factors beyond market beta driving performance. In fact, the risk-return story is teeming with factor narratives. The concept of one dominant beta isn’t dead, but it’s no longer alone.
By Michael C. Thomsett , contributing writer
(For those familiar with options trading and authorized to transact the following level of transactions)
Research in Motion (RIMM) alert: On June 1, 2011, a SmartStop Was Triggered.
The price of this stock in your SmartStops portfolio has fallen to the point where it’s triggered today’s SmartStop.
Note the last two sessions have developed one of two bearish alerts, confirming the SmartStop trigger. The full session was black followed by a downside gap. This may develop into one of two strongly bearish indicators. First is the side-by-side black lines, which will develop if a third session is also black and does not rise to fill the gap. Second is a downside tasuki gap, which develops if the third day is white and moves up and into the gap, but does not close it.
In either event, the confirmation of the SmartStops alert in the form of bearish signals may cause traders to take appropriate action. This may consist of one of three recommended options-based trades:
1. Buy a protective put at 40. This decision makes sense if a trader’s original basis is lower than $40 per share. If the price declines into the money, the put can be closed to offset losses in the stock with increased intrinsic value; or it can be exercise to sell shares at a profit. The profit will be equal to the difference between the strike and original basis, minus the cost of the put. With the stock at $41.16 as of this writing, the June 40 put is valued at 1.41. If traders consider the downside risk short-term, buying this put makes sense. If considered longer term, one of the two following strategies makes more sense.
2. Open a collar using the 42.50 call and the 40 put. The June collar based on these values involves the long 40 put at 1.41 and the short 42.50 call at 1.36. Net cost of the collar is 0.05 plus trading expenses; but it protects against downside protection just like a protective put but for less cost.
3. Open a synthetic short stock position using the 42.50 positions. This involves a long put and a short call. The 42.50 put is at 2.70 and the call is at 1.36. The net cost for the synthetic short stock using June contracts is 1.34. The same strategy using September 42.50 contracts combines the long put at 4.50 and the short call at 3.45, for a net cost of 1.05 but a much longer period of downside protection.
Keep the probabilities on your side.
‘Many Baby Boomers and Gen Xers face a significant retirement income shortfall,’ writes Alicia Munnell , director of the Center for Retirement Research at Boston College
According to Munnell, the current crop of retirees are living in a “golden age” that will fade as Baby Boomers and Generation Xers reach traditional retirement ages in the coming decades.
“Many Baby Boomers and Gen Xers face a significant retirement income shortfall,” she writes. “Even before the financial crisis, almost 45% of working households were projected to be ‘at risk’ [of being unable to maintain their pre-retirement standard of living in retirement]; after the crisis, this level increased to 51%.
Moreover, Munnel adds, the percent “at risk” increases with each cohort. Late Boomers show more households “at risk” than early Boomers, and Generation Xers have even larger numbers “at risk.” This gloomy forecast is due to the changing retirement income landscape.
Market Myths Exploded
( A series of articles exposing common misconceptions about investing and trading)
Myth # 1 — Always double down on paper losses to recapture them
By Michael C. Thomsett, contributing writer, SmartStops.net
A good chess player knows that losing an important piece is a critical moment in the game. The novice will plow forward aggressively, hoping to even the score and exacting revenge on the opponent. If they are playing against a more experienced player, this tactic almost always loses.
You can learn a lot about the market if you understand the strategies of chess. So what should you do when positions in your portfolio are below your basis? These notorious paper losses are troubling, especially if you have sold off profitable positions to take profits when you could. This means you end up with a portfolio full of losers, something no one wants. A paper loss is a loss, but it makes no sense to hold and wait without knowing why your position declined.
To the novice trader, it might seem sensible to buy more shares of the same stock. The theory behind this requires some basic math. For example, if you buy 100 shares at $50 and it is now worth $42, you’re down $800. It takes eight points to get back to your starting point. But if you buy another 100 shares, your average basis is $46 per share:
($42 + 50) ÷ 2 = $46
This means you only need a four-point rise in the stock to break even. You have cut your deficit in half. It seems like a smart move, right?
Not necessarily. Even seasoned traders and investors can call into the trap of chasing good money with bad, the premise behind the theory of averaging down. This might work in situations when the stock price has simply followed a broader market trend, and is likely to rebound along with the rest of the market. But what if the price decline was caused by something more specific to that company?
Before putting more money into the attempt to recapture paper losses, ask yourself these questions:
1. Do I really want more shares of this company? If so, why?
2. What is the underlying cause of the price decline? Was there a fundamental weakness or decline I should investigate? Does this mean that the stock simply might not come back at all?
3. Am I better off selling this stock and buying shares of a different company? (watch for another article in this series about the fallacy of holding on for the benefits of the long-term capital gain)
It is difficult to just walk away from losses. With this in mind, use stop orders to minimize losses. Or if you can’t let the trigger be pulled for you automatically, rely on risk alertsso your decision-making process can be triggered into action when risk has entered your position. You’re better off living with a small loss than hoping for a rebound that might never come. Stubborn traders lose, and wise traders know when to accept a small defeat. its been proven you can only win less than 50% of the time,and make decent profits so long as you let winners run and cut your losses.”
An alternative strategy: take small losses and replace positions with intermediate-term and relatively cheap long calls. The cost is minimal and even though the odds are not great, you might recapture your loss through option profits if the timing is right. Meanwhile, reinvest your funds somewhere else and apply wise technical and fundamental tests beforehand.
Paper losses can destroy your overall return by tying up capital while you wait for a position to turn profitable. That lost opportunity is far more destructive than just taking the loss. You can view opportunity costs and how much your money is making per day in the market for you at SmartStops.net
By Raghu Gullapalli, contributing writer , SmartStops.net
XLP, XLU, XLV
Yesterday, by closing at S&P 1,317 we finally pushed through three key supports – the 55 day moving average, the support level at S&P 1,330, and last week’s lows at S&P 1,318.50. I think these support breaks open the door for a test of the market’s weekly uptrend lines sitting around S&P 1,280. And many technicians agree once the S&P breaches 1,300, the next stop will be the March lows of S&P 1,250.
Contrary to the action in the broader market, the Consumer Staples Select Sector SPDR (XLP), Utilities Select Sector SPDR (XLU) and Health Care Select Sector SPDR (XLV), have all been in a strong uptrend. These up trends have been challenged and these Sector ETFs may soon come in line with the broader market.
The Consumer Staples Select Sector SPDR (XLP) is still trading well above its 55 day moving average but is now being supported by the 21 day moving average. Given the price action the prior two sessions, it would be prudent to be aware of the risk of entering a new position at this juncture. Smartstops.net has the short-term stop at $31.60 and the long-term stop at $31.13
The Utilities Select Sector SPDR (XLU) has begun to pullback as well. Now being supported by its 21 day moving average. And unless this pullback is a period of rest before the sectors continued push upwards, it will more likely cut through both the 21day and 55 day moving averages. SmartStops.net has the short-term stop at $33.18 and the long term-stop at $31.77
The Health Care Select Sector SPDR (XLV) which has been darling of the talking heads on CNBC is now facing a similar challenge to its strong up trend. This mornings poor earnings from Medtronic (MDT) cannot have helped the sectors drive up. The correction look like it is beginning to gain momentum, now that the ETF is trading below its 21day moving average. SmartStops.net has the short-term stop at $35.23 and the long–term stop at $34.46
Posted on the SmartStops Education Center. http://media.mta.org/videos/2010/educational-web-series/chuck-lebeau/chuck-lebeau.html
BNP Paribas’ Cortal Consors Launches SmartStops.net
Translated and edited from: Cortal Consors BNP Paribas Press Release: https://www.cortalconsors.de/euroWebDe/-?$part=Ueber_Uns.Desks.Das_Unternehmen.Desks.Presse.Desks.PM.content.body.20_Article&externalid=denps49442905
21. December 2010
SmartStops helps to secure profits and limit losses with automated intelligence
Just in time for Christmas, Cortal Consors is providing to its customer an innovative new free feature. Customers will now have immediately access, so far exclusively, to the intelligently adjusting stop loss service SmartStops. SmartStops acts as an monitoring and alert tool which helps investors to secure profits and limit losses. SmartStops are generated daily for approximately 500 popular equities on the European exchanges, as well as equities for all major US exchanges. The stop loss signals are adjusted each day and designed to trigger when a trading pattern indicates the equity has entered an abnormal period of risk. Customers can then decide if they want to quickly transfer this proposal to a self-direction a stop loss. SmartStops dynamically apply a range of technical models to adapt stop loss points as market conditions change.
Intelligent risk management
This service is available in short and medium-term version. With the short term variant, the SmartStop is placed closer to the normal range of variance. They react thus faster on market movements than the medium-term SmartStops which are more tolerant in relation to exchange rate fluctuations. SmartStops give more room for variance during an upward trend and also adjust for lateral movement. This helps investors avoid whipsaws or exiting a position during a possible short term correction. However in downward phases, SmartStops adjust closer to the normal range of price variance, helping investors identify greater risk exposure and avoid major losses. As soon as customers log in to the Cortal Consors website and call a share Snapshot, the SmartStops is indicated to help automatically maintain protection – for all DAX, MDax, TecDax, Nasdaq 100 – and Dow of Jones values. In addition, the French benchmark index CAC 40 as well as 80 additional French equities are covered. In the coming year, this service will be extended to 20 additional ETFs.
For further information on SmartStops, go to: