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Friday, May 1, 2009

Ok 1 More: FAZ Chart

This one actually flashed a buy signal. Again, look at the risk/reward factor. FAZ shows positive divergence more than other short ETF's. Financials largely have not particpated in this last few legs up. Sure they rallied some but not to new highs. And the overall banking index, BKX, was even worse then the DJUSFN.

These are some of the charts that makes me step back and say to myself: They will sell in least the first week.


  1. As of 7:30 AM ET FAS up, FAZ down, about 1% each even with the news of the stress test delay.
    Primary 2 (circle) mind set confirmed. One can only assume the stress test data will be released during a down move in the market and/or after it is "cleaned up".

  2. Hi Daneric,

    I'd like to ask you the same question I just asked Kenny on his blog. Looking at his chart this morning, it struck me that wave 5 of P1, and what we originally thought was wave 1 and wave 2 of P2, were both marked by corrections that were much briefer and shallower than we expected...including extended flats and sideways "corrections" that in P2 haven't gone down much at all.

    So my question to you is this: is it possible (given the historic, extreme nature of the P1 decline, and given the extensive manipulation of the market by the government and the banks, etc.) that P2 may not have many (or any) deep, long pullbacks, but might just rise to its 970 or 1050 top with only brief, shallow corrections all the way?

    Or is that impossible under Elliott Wave Theory?

    Thanks for your educated, experienced opinion.

  3. Daneric,

    I asked the above question because I have gotten crushed holding both FAZ and SRS while waiting for "reality and the facts" to provide the deep, long correction that has never come (so far).

  4. I agree with your conclusion, but I find that doing EW analysis (and any technical analysis) on the leveraged ETFs tends to throw things off because of the slippage. (Basically, since these are double- and triple-leveraged and rebalanced, percentage changes get doubled and tripled as well, which trends in a slight loss relative to the underlying index each day. Both FAZ AND FAS will eventually go to zero regardless of what the market does.)

    I find that doing Elliott analysis on the double- and triple-leveraged ETFs tends to show a lot of exhaustion patterns (spikes and ending diagonals) that don't necessarily appear on the underlying.

    Ironically, looking at XLF and IYR probably provide a better picture as to where FAS/FAZ and SRS are going in the short term.

    Also, you mentioned making the switch to Futures in an earlier post. They're so much better than the leveraged ETFs. They can be traded almost 24/7, which is great for those of us with day jobs. You have leverage without slippage if you want it, and you don't have the Theta (time) decay of options, and the tax treatment is better, too. Since your bread and butter is Elliott Waves, and they basically work with everything, it makes a whole lot of other vehicles (precious metals, currencies, Japan) tradeable. You'd be great at it.

  5. Still holding shorts, adding to the position yet again yesterday.

  6. I came to say what SteveInChicago said.