Software & Finance

Stock Trading - FAZ is a Buy

Aug 5, 2010,  CBOE - Volatility Index (VIX) closed today at 22.10. This low level of fear gauge giving as a sell signal and to go long on bear ETFs. 

Direxion Daily Financial Bear 3X ETF (FAZ) closed today at 13.28. FAZ is good to start buying from this level due to the following reasons.


  1. Market has to enter into a correction phase, even if it not going to be double dip. By keeping China as a leading indicator, SHANGHAI SE COMPOSITE INDEX is closed at 2620.757 as of Aug 4, 2010 which is 847 points (or 24.4%) down from its recent annual high of 3468.10.


  1. Even Japanese market - NIKKEI 225 INDEX is also down by about 15% from its annual high. Its recent annual high set on April 05, 2010 at 11,408.17 and closed at 9653.92 as of Aug 4, 2010.


  1. S&P 500 index closed today at 1125.81 which is down by about 94 points (or by 7.7%) from its annual high of 1219.80 set on April 26, 2010. When emerging Chinese market is down by about 25%, most likely, S&P 500 has to follow Chinese market.


  1. Due to upcoming changes on banking regulation, they are less likely to make significant profit compared to prior quarters. Its a good idea to bet against banking and finance sector. Banks can not charge overdraft fee and the debit card transactions are likely to get rejected at the point of sale counter if there are no sufficient funds on the account. Its good for consumers and banks are less likely to make money from such fees going forward. There is no surprise if banks do not offer any more free checking accounts going forward.

Even FAZ is good to buy at these levels, it is important to note that it is a leveraged ETFs. Leveraged ETFs may not be suitable for all kinds of investors as it posses high risk if the market direction is not favorable to you. Also refer to my earlier articles on leveraged ETFs.

In case, if we have to face to double dip recession, then FAZ might even gain easily by 300% - 400%.


Posted on August 05, 2010