FAZ update - a way to cash in on the reaction...

originally published May 3rd, 2009

• FAZ update - a way to cash in on the reaction...
  May 3rd, 2009
• FINANCIAL BEAR 3x SHARES...
  April 23rd, 2009
• Horizons BetaPro S&P500 Bear Plus ETF (HSD.TSX)...
  March 17th, 2009

With the financial sector and broad stockmarket continuing to rally to even higher levels, so that they have now now been ascending for 7 straight weeks it is time for us to take another look at the leveraged bear ETF FAZ, which we took positions in somewhat prematurely over a week ago. While FAZ has continued to drop to even lower levels, it is now falling much more slowly in comparison to the devastating rout it suffered back in March. This is hardly surprising as it is approaching zero and the gains in the Financial sector and broad market have slowed to incremental as they round over beneath heavy overhanging supply which threatens to force at best a significant reaction even if a new bullmarket has started, and at worst a return to the lows or even new lows of course if the larger bear market remains in force. Therefore, whichever way you look at it, FAZ should go up from here, and substantially in percentage terms, and probably the only thing that could stop it would be if the management of this fund drain it into their own pockets faster than new funds can flow in (ETF's in general are increasingly regarded as scams on this site).

The arguments for buying FAZ remain essentially the same as when it was originally recommended on the site at $9.91 on 23rd April, the difference now being that they are considerably stronger. This is because the broad market is that much closer to rolling over and statistically is much more likely to do so after its continued gains, and because FAZ continues to strengthen technically with a strongly bullish Falling Wedge pattern evident on its chart and a marked increase in upside volume over the past week or two, that has been driving up its volume indicators.

FAZ should continue to be held by those who bought on its first recommendation, and positions may be added to commensurate with your overall financial condition and portfolio. This is viewed as an excellent entry point for those not already long. For those of you who are not aware, the reason why these leveraged ETF's perform so badly when the market moves against them or even sideways is that options are used to ramp up their performance, which are of course subject to time value erosion. These factors may be made worse by poor management and suspected looting of the funds by their overseers. Despite all these potential obstacles, FAZ still looks attractive here.

FAZ webpage

FAZ, closed at $8.61 on 1st May 09.