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Watch These Three Stock Market Warning Signals

Feb 3

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by Claus Vogt 02-03-10

The stock market does not turn on a dime. At least historically that’s been the case.

Take Japan as an impressive example …

At 10,300 the Nikkei is now 74 percent below its all time high of December 1989. On the long way down it has experienced many cyclical rallies, some of them amounting to gains of more than 100 percent!

All of them finally failed. Yet none did so by turning on a dime. There was always a distinctive topping process going on before the bear finally struck.

Or take the secular bear market that plagued the U.S. from 1966 to 1982. Or the German secular bear market from 1960 to 1982 … or the spectacular stock market crashes of 1929 and 1987 … and you’ll detect the same pattern: A marked deterioration of market internals — and of interest rate based indicators — before the famous crashes struck.

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So if history is our guide, we should not expect this time to be different. Of course there are no guarantees. But I think chances are very good that we’ll get some of the typical indications of an imminent bear market before this medium-term up trend that began in March 2009 is over.

And to pick up on those indications when they start flashing warning signals of a trend change, I’m closely watching for deterioration in three major areas …

Warning Signal #1:
Macro-Economic Deterioration

The LEI increased sharply in December.

The Conference Board’s Index of Leading Economic Indicators has an outstanding track record in giving warning signs of an imminent recession. And when it does, you can expect that a severe bear market is in the making.

As of December 2009, this indicator was up 7.7 percent year-over-year after rising 6.3 percent in November. These strong readings signal a continuation of the economic rebound for at least another two quarters.

So this indicator has not given a warning signal yet.

Warning Signal #2:
Monetary Deterioration

Interest rates and monetary growth have a huge influence on the stock markets. And strongly rising rates are bearish, especially short-term ones.

The Fed has again made clear that it will keep short-term interest rates very low for an “extended period of time.”

No warning signal here.

However, with long-term rates the picture is more problematic …

As shown in the chart below, 10-year Treasury bond yields have clearly risen from the panic lows reached in December 2008. Yields doubled from December 2008 until June 2009 and have trended sideways since then.

10 Year Treasury Note Yield
Source: www. decisionpoint.com

If 10-year Treasury bond yields rise above the June 2009 high of 4 percent for a few months, you should expect problems for the stock market. And I predict they will rise during the coming months.

Again, no warning signal, at least not yet.

As an answer to the crisis in 2008 the Fed started printing money like there was no tomorrow. Consequently, monetary aggregates skyrocketed with double digit year-over-year growth rates. Additional liquidity pushes prices up, which could fuel a bull market.

However, this very high monetary growth has come down remarkably. This is an early warning sign, but not yet severe.

The time lag between monetary changes and changes in the financial markets or even the economy are long. Only if the deterioration in monetary growth continues during the coming months would a clear warning signal be given.

Warning Signal #3:
Technical Deterioration

There are many technical indicators to watch for a trend change. Four of the most important are the 200-day moving averages, market breadth, new highs and new lows, and investor attitudes toward the market. None have shown any signs of deterioration, but they did confirm the January stock market highs.

Important technical indicators have not given any warning signals yet.

The 200-day moving averages of all major indexes globally are rising strongly. Both, the advance-decline line and the advance-decline-volume line have reached cyclical highs in January. And the number of stocks reaching new 52-week highs has been strong during December and January, while the number of new 52-week lows has been negligible. Bear markets have rarely begun with such a strong technical picture.

What’s more, a remarkable change was visible in sentiment indicators …

During December and the first half of January they showed a high degree of complacency and stock market optimism. Investors Intelligence showed a bull to bear ratio of 3:1. This changed rather quickly as you can see in the chart below.

S&P 500 Large Cap Index

Source: www. decisionpoint.com

During the week of January 22 the number of bullish advisors fell from 52 percent to 40 percent. The bull-to-bear ratio, which was around 3:1 for eight consecutive weeks, came down to a neutral reading of 1.7:1. At the same time the American Association of Individual Investors shows that bears slightly outnumber bulls with 37 percent compared to 35 percent.

Neither of these indicators is giving a warning signal of a market that is excessively invested and overly optimistic.

Obviously the cracks in the wall of worry are being repaired rapidly. This strongly supports my interpretation that the recent stock market retreat is nothing more than a harmless correction. And I believe that a short-term buying opportunity is taking shape.

Best wishes,

Claus

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Dec 10

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If you need help or have any questions please email us at iduniversity@charter.net

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Understanding Calls and Puts and Your Rights Vs Obligations

Dec 10

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There are two types of options they are called Calls and Puts. For a Call you are going to call the underlying instrument away from someone. The Call owner (buyer)has the right, but not the obligation to purchase an underlying security for a specified price by a certain expiration date. A put can be thought of as if you are putting it to somebody, so you are selling. The put option gives the owner (buyer) the right, but not the obligation to sell an underlying security for a specified price (strike price) by a certain expiration date. As you can see a person can both buy and sell calls and puts.

So as the writer or seller of either option you have the obligation to sell the underlying security for a specified price by a specified time if the buyer exercises his right. And a put is the same way if you are the writer or the seller of this particular put option you are potentially obligated to buy the underlying security at a specified price before a specified time, if the buyer exercises his rights to that option.

Simply put buyers of options have rights that they can exercise and sellers of options have potential obligations. The fundamental reason the buyer has rights is because he has paid a premium to ensure those rights. The seller of the option has received money to hold the underlying security for the buyer. So when would you purchase call or sells?

You can think of it this way calls are usually purchased when it is believed that an underlying security will be going up in value. If you think that the stock price is going to go up then you would purchase a call option. And a put option would be bought if you believe the exact opposite that the underlying stock will be potentially going down in value. Now when you begin exploring strategies you will understand how it is possible to actually make money when the underlying security is losing value.

When someone says they are long a call or short a put. The key thing to remember when you hear these terms is if you are in the long position then you are the buyer (owner) of the option. If you are short in a position then you are the seller (writer) of the option. When you are long a position it means you are the one who has rights, if you are short an option then you have a potential obligation. Notice you are only potentially obligated because if the buyer chooses not to exercise his rights by the time the options contract expires then you are not under any obligation.

For more free information on options, check out this free online video course.

Michael
http://www.smartradenews.com We offer a free basics video course to teach you the basics of options. We also have more advanced courses for a fee. So whether you are just starting out or if you want to continue your options education we have something for you.

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Playing the Health Care Sector with ETFs

Oct 29

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by Ron Rowland 10-29-09

We’ve all been waiting on pins and needles to see what kind of health care reform comes out of Washington. Aside from the fact that we’re all patients of one kind or another, health care is a huge part of the economy.

As you might expect with big changes afoot, health care stocks have been bouncing up and down this year. Such volatility can be frightening — but it also brings opportunity for investors who know how to take advantage.

The wave of new exchange-traded funds (ETFs) launched in the last few years gives you plenty of ways to bet on health care trends. In fact, there are more than two dozen health care ETFs to choose from.

Like technology and financials, health care can be broken up into several sub-sectors. So today I’ll describe these and list a few ETFs for you to consider …

General Practice:
Diversified Health Care ETFs

If you’re looking for an ETF to get you into health care quickly and easily, maybe as part of a long-term asset allocation strategy, you can pick from several broad sector funds.

SPDR Select Health Care Sector (XLV)

Vanguard Health Care ETF (VHT)

iShares Dow Jones U.S. Health Care (IYH)

PowerShares Dynamic Health Care (PTH)
All of these are great funds, well diversified and liquid. I mentioned XLV in last week’s Money and Markets column because it contains the health care components of the S&P 500 index.

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One drawback to these funds is that they’re focused strictly on U.S. stocks while health care is a worldwide industry. In fact, several of the biggest pharmaceutical firms are headquartered in Europe. There are, however, global and international health care ETFs to help you diversify geographically, such as:

iShares S&P Global Health Care (IXJ)

SPDR S&P International Health Care (IRY)

WisdomTree International Health Care (DBR)
IXJ includes both U.S. and foreign health care stocks while IRY and DBR are composed exclusively of non-U.S. stocks.

Medical Delivery:
Health Care Provider ETFs

Medical delivery ETFs invest in companies that take care of patients.
Providers are where the rubber glove meets whatever part of you needs help. Examples include: Hospitals, labs, pharmacies, radiology facilities, and all kinds of companies that deal directly with patients.

This sub-sector also includes health insurance providers, since they’re the financial conduit through which most people get their care. Currently only two ETFs cover this group:

iShares Dow Jones U.S. Health Care Providers (IHF)

PowerShares Dynamic Health Care Services (PTJ)
Of these, IHF is by far larger and more actively traded, but PowerShares is growing fast, too.

You can make money from prescription medicines with pharmaceutical ETFs.
Take Your Pills:
Pharmaceutical ETFs

Our country seems to be taking more and more pills these days. I’m not sure whether this is a good thing — but the companies that make top-selling drugs are very profitable.

The pharmaceutical sub-sector consists of both massive global drug makers and niche start-ups that are trying to develop new treatments. You’ll also find generic drug makers in here trying to provide you with lower-cost medicine when the patents expire on the big-name drugs.

Three ETFs covering the pharmaceutical companies are:

iShares Dow Jones U.S. Pharmaceuticals (IHE)

PowerShares Dynamic Pharmaceuticals (PJP)

SPDR S&P Pharmaceuticals (XPH)
Designer Genes:
Biotechnology ETFs

I discussed biotech ETFs in my Money and Markets column back in July. The sector went on a tear for the next couple of months and is now consolidating. When it starts to take off again, you might want to consider these ETFs:

iShares Nasdaq Biotechnology (IBB)

SPDR S&P Biotech (XBI)

First Trust NYSE Arca Biotechnology Trust (FBT)

PowerShares Dynamic Biotech & Genome (PBE)

PowerShares Global Biotech (PBTQ)
Keep in mind that biotech is a volatile sub-sector that can turn on a dime. But if your timing is right, any of these funds could deliver huge gains!

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Beeping Machines:
Medical Device ETFs

If you’ve been in a hospital lately, you know they’ve gone high-tech. The variety of machines they use is staggering — and so is the difference they make in our lives. You might even have a medical device inside you right now.

Pacemakers, knee replacements, heart stents — all of these wondrous things are designed and built by somebody. And they don’t come cheap.

Medical devices can do miracles!
Surprisingly only one ETF specializes in this segment: iShares Dow Jones U.S. Medical Devices (IHI). It’s a great little niche fund with a good assortment of companies.

For the more adventurous ETF investors there are also leveraged and inverse ETFs that focus on the health care sector. Just be sure you understand the additional risks before going this route.

What impact will health care reform have on these sector funds? I think it’s too soon to say. But if you decide to invest in this exciting industry, ETFs give you plenty of choices. Good luck!

Best wishes,

Ron

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About Money and Markets

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.

Two More of My Favorite Technical Indicators

Oct 27

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by Nilus Mattive 10-27-09

Two weeks ago, I told you why a quick look at Colgate’s chart led me to believe that its run was going to continue through the early fall. And I also said that I had a few reasons to be wary of the stock’s ability to continue rising going forward.

If you’re a Dividend Superstars subscriber, you should have closed out that position based on my recommendation in the issue that just went to press. I’m tracking a gain of 32.7 percent. Great!

Now today I want to talk about a couple of the other things I look at on charts … and how they apply to some of the other investments that I’ve mentioned before here in Money and Markets.

Let’s start with …

The Importance of Support and Resistance:
Understanding Investors’ “Lines in the Sand”

Investors have a tendency to get hung up on certain numbers … quite often round ones. You know, like Dow 10,000.

I’m not a psychologist, so I’m not going to hypothesize on why it happens. But from many years of following the markets, I can tell you that it does happen with alarming regularity.

This is precisely why I pay close attention to clear levels of support and resistance whenever I look at any investment’s chart.

Let me explain with a real-world example …

Here’s a chart from Vanguard’s Inflation-Protected Securities fund (VIPSX), a good stand-in for the TIPS and I-Bond inflation hedges I’ve been regularly suggesting here and in Dividend Superstars …

In my past discussions of this particular fund, I pointed out that the low $12 level seemed very important psychologically to this particular investment. That’s because — as my trendline demonstrates — the fund had repeatedly bumped against this level before the credit crisis began … and again after the market rally started in 2009.

As you can see, once it recently broke through that level, it swiftly moved up another 4 percent. While that move might not sound huge, you have to remember that this is a mutual fund based on government bonds!

Are there fundamental reasons behind the move? Absolutely. Worries over a falling dollar and renewed inflation are obvious catalysts spurring investors to move into these hedging investments.

But that’s the point: These charts reflect the market’s collective thoughts and opinions. When events are enough to push an investment through a level that previously presented resistance … it means a certain critical mass has been achieved … and momentum quite often takes over from there.

Obviously the opposite is also true. When a level has previously held on countless downdrafts — forming a strong area of support — you better look out below the first time that level is seriously broken!

Now I’ll be the first to say that you never know when an important level is going to hold or not. However, simply being aware of critical breaking points — along with the fundamental reasons moving a market or an individual investment — will help you make more educated (and hopefully more profitable) decisions.

Of course, it never hurts to layer on one more relatively simple technical indicator that also measures levels of support and resistance …

Moving Averages: Another
Favorite Technical Analysis Tool

During my last analysis of Colgate in this column, I pointed to trendlines as a way to get a sense of an investment’s general direction.

Well, moving averages take trendlines to the next level because rather than being constructed somewhat arbitrarily (i.e. “pick a couple points that look important to you”), they are computed automatically based on a preset series of data. Specifically, a moving average is a line based on the arithmetic average of the prices it’s drawn against.

What’s the benefit? This way smoothes out all the little movements and creates a line that you can compare them to. Common moving average periods include 200-day, 90-day, and 60-day periods.

I like moving averages as another way to gauge general uptrends and downtrends, and to spot major market reversal points.

Speaking of which, here’s a chart of the S&P 500 with a 60-day moving average thrown in for good measure …

As you can see, the market is well above its moving average, and thus remains in an uptrend. Only a drop below the 1040 level would signal a change in that trend.

And perhaps the best part about technical analysis tools like moving averages is that they are no longer only available to professional investors with thousands of dollars in trading software. In fact, most online chart providers — including free websites like Yahoo Finance — now allow you to overlay these tools to whatever investment you’re viewing.

If you don’t already use these indicators, I encourage you to play around with them … they can give you another interesting way of viewing your investments.

Best wishes,

Nilus

P.S. In addition to that Colgate sell order, my latest Dividend Superstars issue also contained a brand-new dividend stock to buy (in the tech sector no less!). If you’re not yet a subscriber, and you’d like to get that hot-off-the-press recommendation, consider taking a risk-free subscription to my service for just $69 a year.

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Tags: basic terms for trading options, options trading, options trading 101, options trading basics, options trading for beginners, technical indicators

Moneyness of Options

Oct 23

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Now don’t go and try to look up that term Moneyness in the dictionary you won’t find it there. This is a term you might hear when people are talking about options. The next three terms I am going to give you the technical definitions first and then I am going to give you examples and ask some simple questions to help you remember what people are talking about when they use those terms.

The three phrases often used when describing an options moneyness are; in the money, out of the money, and at the money. A call option that you own is said to be in the money when the price of the underlying security costs more than the strike price you have locked in. The reason it is in the money is because with a call option you have the right to purchase an underlying security for a lower price than what the stock is selling for in the market. There is an immediate value to owning this option. Is that a good or bad thing for you? I would think it was a good thing to be able to purchase something cheaper than anyone else could purchase it! So because it has value it is said to be in the money.

In the following example ask yourself the simple question is there any benefit to me in owning this option right now? Right now on the market xyz stock is selling for $50.35 and you have the right to buy it for $45. Ask yourself this, would you rather pay $45 or $50.35 for xyz stock. I know if it is worth $50.35 I would much rather buy it for $45 than $50.35. So this call option is said to be in the money by $5.35, because this option is at least worth that much.

A put option is said to be in the money when the price of the underlying security is lower than the strike price. The reason it is in the money is because with a put option you are buying the right to sell an underlying security for a higher price than what the current value is on the market. If, red socks could be purchased on the open market for say $5, but you had an agreement with one customer that he would pay you $10 for your red socks, would that be a good deal for you? The obvious answer is of course, yes you just made an extra $5 more than anyone else in the market could have made.

An example in the stock market would be that XYZ is trading for $30 on the market you have the right to sell it for $40. Which price would you rather sell your stock to someone for $30 a share or $40 a share? I know if I owned something I want to get as much money for it as I can if I am going to be the one selling it. In other words your put option is worth at least $10 so it is, in the money.

Now a call option is out of the money when the underlying security is selling for less than the strike price. Why? Well if you have the right to purchase at a set price that happens to be higher than what you could get it for on the market would you want to buy it at the higher strike price? I wouldn’t want to pay more money for something that I could have purchased for less, so your option isn’t worth exercising. There is no immediate value in owning this option so it is out of the money.

Again, looking at our fake XYZ companies stock, it happens to be selling for $30 in the market today. Your Call option gives you the right to buy the underlying security for $40. Ask yourself the simple question, “would I rather purchase XYZ stock for $30 or $40?” As you can see there is no immediate benefit in having the right to purchase the stock for $40 per share if you can already purchase it on the market for $30, so this stock is said to be out of the money.

A put is out of the money when the underlying security is more expensive than your strike price. Why? Again going back to your rights spelled out in your put options contract. You have the right to sell the underlying security for less than what the security is selling for on the open market. Is that a good thing for you? Of course not, you could sell it for higher in the open market so you would not want to sell it to someone else for less money in your pocket, so the option is out of the money.

Looking again at our XYZ stock, it is selling for $50 in the market and you have the right to sell it to someone for $40. Would you want to exercise your right in the contract? No because you would rather put $50 in your pocket for the stock than $40. There is no immediate benefit to owning this put option contract so it is said to out of the money.

A call or put is at the money when the underlying security is selling at the same price as the strike price in either contract. This contract is really neither good nor bad. When you are looking at an options chain in your brokers’ platform it doesn’t usually happen that the stock price and the strike price are exactly the same. Most traders refer to the option closest to the stock price in the option chain as the at the money option.

To summarize if the option has immediate value it is in the money. If the option has no immediate value it is out of the money. And if the options strike price and price it is selling for in the market are the same or really close it is at the money.

For more beginners information on stock options you can download this free basics course.

Michael http://www.smartradenews.com We offer a free basics video course to teach you the basics of options. We have more advanced courses for a fee. So whether you are just starting out or if you want to continue your options education we have something for you. DISCLAIMER: No personal investing advice is implied or stated in any video or written presentation. The information presented is for educational purposes only and should not be construed as personal legal or investment advice.

Tags: at the money, In the money, options trading, options trading basics, options trading for beginners, out of the money

Basics to Understanding Stock Options

Oct 21

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Understanding the basic terms for options is one of the first steps for being able to trade profitably in options. Options trading can help you manage risk and can be profitable but you must have a good foundational knowledge to really benefit from them. In this article I want to introduce you to a few of the basic terms you will run into when you are trading options. Remember you can also plug anyone of these terms into your Google browser and further educate yourself on these terms. The more you know the better off you are.

First of all Options are derivatives of something. That means an Option gains its value from some underlying instrument that has value. In the case of options trading the underlying instrument are stocks, commodities, futures contracts, foreign currencies, or stock indexes. So the options contracts would base its value on the values of whatever instrument you want to trade.

Now remember all an option is a contract between a buyer and a seller. In a contract both parties have to agree upon certain things. One of the first things that the two parties need to agree upon is the strike price. Simply put the strike price is the price in an options contract at which the underlying instrument is bought of sold if the options is exercised. So the buyer of the options contract reserves the right to purchase or sell the underlying instrument for a specified price or strike price. Think of it as the price you are locking in for a premium.

The premium is the amount of money you are going to pay to lock in the strike price of the option. In other words, for a call option, I lock in the option to buy the underlying instrument for a certain strike price by a certain date. You will receive a premium for holding that stock for me until the option expires or ends.

Take for example I believe the value of your house is going to increase from its’ current value of $100,000 to $200,000 because there is a new sub-division coming in that you might not know about. I am going to pay you $10,000 right now for you to hold the house for me for three more months. By the end of three months, if I choose to, I will pay you $150,000 for your house. You just bought the house for $75,000, so hey you are getting to double the amount of money, so for this example you agree. Now remember no matter what you get to keep the $10,000 premium. So even if I decide not to buy your house for $150,000 you keep the $10,000. If I find someone willing to pay $200,000 for the house I will exercise my rights to purchase the house from you for $150,000. You would have made a profit of $85,000 from when you bought the house and my investment of $10,000 would gain me $40,000.

The expiration date, on options, is the date at which the options contract has to be exercised by or else it expires worthless. In the previous example I would only have 3 months to find a buyer willing to pay $200,000 before I would profit. The expiration date for most options is the third Friday of the expiration month specified on the contract. Because the markets close on Friday, technically speaking Saturday is when they officially expire, but that is only for trade clearing and resolution of errors. You could not contact your broker on Saturday and tell them you wanted to exercise your option rights.

Get more free information on trading stock options with this free basics video course.

Article Source: http://EzineArticles.com/?expert=Michael_A._McIntosh

Tags: basic terms for trading options, options trading, options trading 101, options trading basics, options trading for beginners

Oct 15

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How to Target the Rising Financial Sector with ETFs

by Ron Rowland 10-15-09

I’ve had great success with sector-based exchange traded funds (ETFs) over the years. And that’s because — despite whatever problems the broader stock market may be having — usually one or more niches are still doing well.

This year one of the leading niches has been financial services. That definitely wasn’t the case last year at this time, when many banks were teetering on the edge of failure. They survived (most of them, anyway) thanks only to government bailouts.

Financials are rocketing higher this year!

Now stocks from this sector are zooming higher! In fact, the S&P 500 Financial Index jumped 153 percent from its March 6 low through October 12.

Will the financial rally continue? Not forever — the banks still have a lot of problems, and the Fed can’t keep rescuing them indefinitely. Even so, with many of these stocks still 50 percent or more below their 2007 peak, there’s plenty of profit potential left for you.

And if you’re interested in playing this uptrend, you can pick from a nice selection of ETFs. In fact, there are currently 34 ETFs that focus on the financial sector. Here are a few you may want to consider. Some are very diversified, while others are more specialized.

These Broad-Based ETFs
Cover the Entire Financial Sector

The lines between the different kinds of financial services firms are mighty fuzzy these days. Huge conglomerates like Bank of America (BAC) and JPMorgan Chase (JPM) are involved in everything from banking … to stock underwriting … to life insurance.

If you want to own these leaders, plus a cross-section of smaller companies, consider one of these ETFs:

SPDR Select Sector Financial (XLF)
iShares Dow Jones U.S. Financial (IYF)
Vanguard Financials ETF (VFH)

All of these funds have reasonable fees and good liquidity. XLF is focused exclusively on large-cap financial stocks. The other two own some smaller companies as well, but all three are well-diversified within the sector.

Unfortunately, these funds are missing some potentially great upside by not owning financial stocks from outside the U.S. For that reason, you might want to look at …

Global and International Financial ETFs

Asia and Europe have some colossal — and highly profitable — financial services stocks. But you usually won’t find them in U.S.-focused ETFs or mutual funds.

Asia is a financial powerhouse.

If you want to be diversified, both geographically as well as within the industry, you need a global or international fund. (Note that these two words don’t mean the same thing. Global means “the whole world;” international means “the whole world except the U.S.”)

Right now there’s only one ETF that gives you the worldwide financial sector in one package: iShares S&P Global Financials (IXG). Several international funds cover the sector outside the U.S., though. A couple to look at are:

WisdomTree International Financial (DRF)
SPDR S&P International Financial (IPF)

Combine one of these funds with a good U.S. financials sector ETF (like the three named above) and you’ll have the financial world in your hands.

Don’t Forget About Niche Financials ETFs

ETFs let you focus on special niches of financial services.

Now, what if you want to get more aggressive and zero in on particular parts of the financial sector? ETFs can help you there, too.

Financial services consist of three primary sub-sectors: Banking, insurance, and brokerage (sometimes called “capital markets”). You can get ETFs that are devoted to each of these niches …

For banking firms, look at SPDR KBW Bank ETF (KBE), iShares Dow Jones U.S. Regional Banks (IAT), or PowerShares Dynamic Banking (PJB).
For insurance companies, you can pick from iShares Dow Jones U.S. Insurance (IAK), SPDR KBW Insurance ETF (KIE), or PowerShares Dynamic Insurance (PIC).
For brokerages, consider SPDR KBW Capital Markets ETF (KCE) or iShares Dow Jones U.S. Broker-Dealers (IAI). Additionally, there is Claymore/Beacon Global Exchanges, Brokers and Asset Managers (EXB) — which also wins the award for longest fund name in today’s column!

However, before jumping into any of these funds, be sure to check the average trading volume, as some of the niche products may have less-than-desirable liquidity.

But always remember: With ETFs, you can now build a financial sector portfolio that’s customized to your needs and preferences — not what some overpaid portfolio manager thinks you should have. The tools are available. All you have to do is use them!

Best wishes,

Ron

About Money and Markets

Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

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Gold Giving Another Buy Signal

Oct 14

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Gold Giving Another Strong Buying Signal
by Claus Vogt Dear Subscriber,

In my September 9 Money and Markets column I showed you this gold chart:

Gold chart
Source: www.decisionpoint.com

On that date, I said, “This breakout of a huge triangle is a clear technical buying signal.” I added that the minimum price target of this triangle formation was roughly $1,100. This was well above major resistance in the $1,000 area, thus hinting that another major breakout and buying signal would take place soon.

Well, that’s exactly what happened last week!

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Gold Hit 1,059 …
Triggering Another Major Buy Signal

Take a look at the weekly chart below. It gives you a good perspective of how important this breakout to new high ground actually is. As you can see, it signals the end of a medium-term correction that began in March 2008 and the beginning of the next medium-term up trend of a secular bull market that started in 2001.

Gold chart
Source: www.decisionpoint.com

The minimum price target of this huge consolidation pattern is $1,300. And I believe much larger gains are certainly possible.

Also consider this: Four weeks ago the Hulbert Gold Newsletter Sentiment Index (HGNSI) stood at 25.2 percent. Now, four weeks later and gold nearly $100 higher, the HGNSI has actually fallen to as low as 18 percent! A rising market accompanied by a declining number of bulls is a rare development. And it’s clearly bullish.

Longer Term Fundamentals
For Gold Are Very Bullish, Too

There are many fundamental reasons to own gold.

Besides the technical buying signals I’ve given you today, I want to repeat the major fundamental arguments for owning gold:

As a consequence of the current financial and economic crisis, government debt is going through the roof — not just in the U.S., but all over the world.
Worldwide central banks are printing money like there is no tomorrow.
Gold demand is rising due to wealth creation in emerging economies where gold still plays a large role as a store of value.
Gold demand is even rising in the West as more investors doubt the wisdom of central banks and governments.
Gold supply is stagnating or even slightly shrinking — despite the metal’s price rise since 2001. This is because it’s getting ever more difficult and expensive to get gold out of the earth.
Finally, central bankers who were eager to sell government gold at much lower prices a few years ago, are getting increasingly reluctant to keep doing so. Emerging market central banks are even buying.

As long as most of these catalysts for higher gold prices remain in place, I expect the long-term bull market to continue. And much higher highs are very likely.

Best wishes,

Claus

About Money and MarketsFor more information and archived issues, visit http://www.moneyandmarkets.com

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

15430 Endeavour Drive, Jupiter, FL 33478

How to Trade China with ETFs

Oct 8

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by Ron Rowland 10-08-09

Right now, China is celebrating 60 years of Communist party rule. Most of the party-goers aren’t old enough to remember anything else, of course, but that isn’t stopping the nationwide festivities.

The sheer scale of China is mind-boggling! Just think about it …

1.3 billion people — more than 4x the U.S. population …
3.7 million square miles …
And borders that touch 14 other nations!

Communist China Turns 60.

Back in the 1970s, the Chinese government figured out that the whole “central planning” thing wasn’t working so well. And communist ideology gave way to a pragmatic mix of state ownership and entrepreneurial capitalism.

It worked … China’s economy is now 70 times bigger than it was in 1978, when the economic liberation began. Depending on how you calculate, China is either the second or third largest economy in the world!

The vast industrial base, concentrated in the coastal regions, is transforming China. Farm workers from the massive interior are drawn by the relative high pay of factories. New cities spring up out of nowhere to house these workers and provide for their needs …

… And now many of the products that were once immediately shipped to the U.S. or Europe are staying at home, snapped up by China’s newly-prosperous middle class.

A middle class in a communist society? Hard to believe, yes, but there really is such a thing in China now. And there’s an entire younger generation that now knows what they’re missing — and they’re working hard to reach the next level.

China’s new middle class is on a shopping spree.

So if long-term rewards are what you’re looking for, China represents an amazing investment opportunity. But how do you play it?

First, recognize that anything China-related is going to be a roller-coaster ride, just as it has been the last few years. Therefore don’t invest unless you’re prepared for the bumps and jerks.

Second, know how much risk you’re taking. Individual Chinese stocks can deliver amazing profits, but they can be hard to trade. That’s why I think exchange traded funds (ETFs) are the best way for most investors to get involved in China’s hot market. And you have several choices — some diversified, some more specialized.

Here’s a quick summary:

Broad-Based China ETFs

U.S. investors can pick from four ETFs that track diversified Chinese stock market indexes:

iShares FTSE China Index Fund (FCHI)
iShares FTSE/Xinhua China 25 Index Fund (FXI)
SPDR S&P China (GXC)
PowerShares Golden Dragon Halter USX China Portfolio (PGJ)

Each of these ETFs takes a slightly different approach to constructing a China portfolio. FXI holds the 25 largest Hong Kong-listed companies that are available to foreigners. FCHI and GXC are similar but add some mid-cap stocks to the mix. They’re a little more diversified than FXI. All three are capitalization-weighted.

PGJ takes a somewhat different tack. First, it includes only Chinese stocks that have a listing on U.S. exchanges. Second, PGJ uses a tiered-weighting method, which results in the sector mix being a little different from the others.

Specialized China ETFs

If you want to get a little more aggressive, Claymore offers two China ETFs that have a tighter focus:

Claymore/AlphaShares China Small Cap Index ETF (HAO)
Claymore/AlphaShares China Real Estate ETF (TAO)

HAO is a good way to get exposure to small, fast-growing Chinese companies. These stocks tend to be less dependent on exports and more related to China’s domestic economy. TAO gives you an opportunity to profit from China’s real estate and construction boom.

China is growing like crazy.

Inverse and Leveraged China ETFs

What if you think that China’s stock market has gone up too far, too fast, and is due for a quick drop? You may still be able to profit with ProShares UltraShort FTSE/Xinhua China 25 (FXP). This is a 2x leveraged inverse ETF. For instance, on a day when the underlying index goes down 2 percent, FXP is calibrated to move twice as much in the other direction — up 4 percent in this example.

On the other hand, if you’re bullish on the Chinese market, there’s the ProShares Ultra FTSE/Xinhua China 25 (XPP). This 2x leveraged “bullish” fund aims to give twice the daily move in the same direction.

The leverage factor for ETFs like these is reset daily, so the 2x math doesn’t always work for periods longer than a day. In other words, FXP and XPP are best used as tools by short-term traders, but if your timing is right you can make big profits from them.

Chinese Currency ETFs

If you want to bet on China’s currency, the renminbi (also called the yuan), you can do it with these two instruments:

Market Vectors Chinese Renminbi/USD ETN (CNY)
WisdomTree Dreyfus Chinese Yuan Fund (CYB)

There’s one key difference between the CNY and the CYB: CNY is actually an exchange traded note (ETN), not an ETF. Practically speaking, ETNs work much the same way as ETFs, but they’re actually a form of debt instrument. I wrote about the unique risks of ETNs earlier this year in my Money and Markets column.

Chinese law prevents the funds from directly investing in the renminbi, so they hold currency derivatives known as nondeliverable forwards. These are similar to futures contracts, which reflect a market’s expectations. As a result, these funds might not perfectly track the yuan.

As you can tell, there are plenty of ways to invest in China’s stunning growth story. I’ve only covered a few of them here, and ETF sponsors are planning many more. Do your research first, but don’t overlook China. The opportunity is too big to pass up!

Best wishes,

Ron

P.S. I cover China and other international ETF trends in my 21st Century Superpower Trader premium service. Subscribers receive specific buy and sell recommendations for the fastest-moving global markets. Follow this link for more information.

About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.