The Trend Is Your Friend Till It Ends

Apr 15th, 2009 – Comment

Bruce  from Toronto, Ontario writes about FAZ or FAS: Hi Lou, I bugged you before and you nailed it with a great call on Barclays Bank. I been having fun playing the FAZ and FAS. I was wondering what your opinion is on these face ripping ETFs? I love your input on AM640. Thanks, Bruce […]


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Bruce  from Toronto, Ontario writes about FAZ or FAS:

Hi Lou,

I bugged you before and you nailed it with a great call on Barclays Bank.

Watch Your Thumb

Watch Your Thumb

I been having fun playing the FAZ and FAS. I was wondering what your opinion is on these face ripping ETFs? I love your input on AM640.

Thanks,
Bruce

Hi Bruce,

Glad that you made some dough on Barclays ! And Bruce don’t ever think you are bugging me. You are doing me a big favour by exposing me to investments and ideas that may not be on my radar. Your questions and those of other investors, taxpayers, business owners and managers make me think. Which is never a bad thing.

Direxion Financial Bear 3x Shares ETF ( FAZ NYSE) and Direxion Financial Bull 3X Bull ETF ( FAS NYSE) offer 3x leverage to the Russel 1000 Financial Services Index. As we all know leverage is great when its cutting big slices of profit and hurts like all get out when its chewing through your capital.

Looking For A Bottom

Looking For A Bottom

The Financial 3x Bear has been gored by the market rally that began on March 9, 2009. There has also been some excitement about the results reported by Wells Fargo. Right now the Bear is in the penalty box and none of the indicators are suggesting a reversal of the downtrend.

If you like FAZ put it on your watch list and monitor it for signs of opportunity but there is no reason to chase it at this time.

The Financial Bull 3x has been enjoying a great run since March 9 and if you look at the chart you can see an inverted head and shoulders formation that signaled the reversal in the downtrend.

Inverted Head and Shoulders

Inverted Head and Shoulders

There is also some resistance at $10 which FAS needs to break above to sustain its advance.

Of the two ETF’s you asked about Bruce FAS shows better but that doesn’t mean it is without risk. Some would say that the easy money has been made on this one. I would say there is no easy money and when your capital is in the market it is 100% at risk.

The question I ask myself is can we expect more from an index that has gained so much in so little time?  Clearly the FAS case is not as clear cut as Barclays was at the time. But if it breaks above $10 it could run to $15 without much resistance.

Happy Capitalism!

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