Above is the chart for UYG, Proshares' ultra-long financial sector ETF. This sector has been rightfully punished by the market for its components' indiscretions, forays into now-illiquid markets, and other eff-ups.
My short position in the overall market remains strongly-held. Charles Kirk, over at his namesake site, bolstered my market viewpoint this morning with the following comment:
With key technicals breaking down on Friday, the market is vulnerable for at least another test of the March lows. The key will be whether investors keep getting more unexpected bad news above and beyond what they already anticipate this week. The combination of this week's inflationary data and earnings will be pivotal.However, I want to be ready for the opportunity to go long if the market does indeed break down, test the March lows, and encourage me to liquidate my short positions.
Beyond broader market ETF's like QLD and DDM, I think eventually establishing a short-to-intermediate term position in the financials could be a profitable move.
Here's a link to the daily top 10 holdings of UYG. And here's the top 10 holdings as of last Friday:
|as of 4/11/08 Top 10 Holdings | Show All|
|BANK OF AMERICA CORP COM||7.23%|
|JPMORGAN CHASE & CO COM||6.27%|
|CITIGROUP INC COM STK||5.30%|
|WELLS FARGO & CO COM STK||3.89%|
|GOLDMAN SACHS GROUP INC||2.62%|
|US BANCORP DELAWARE COM||2.45%|
|WACHOVIA CORP COM STK||2.40%|
|BANK OF NEW YORK MELLON||2.12%|
|AMERICAN EXPRESS CO COM||1.94%|
As of today's close, each of these companies were affected by the Wachovia announcement of its need to raise $7B in additional capital. The RSI(2) for these stocks fell to deeply oversold levels:
AIG - 2
AXP - 1
BAC - 0
BK - 13
C - 5
GS - 2
JPM - 0
USB - 10
WB - 12
WFC - 1
UYG also had its RSI(2) fall to 1.
So, why buy UYG when all of these components are oversold and volatile?
Since February 1, these companies have traded anywhere from 10-40% off their peak values. The main draw of UYG would normally be its 2X volatility, but in this market, the diversity of names is just as important. I want some protection from an individual name blowing up, like the aforementioned Wachovia.
I'll track UYG, and will establish a position if the market affords the opportunity. The charts below (of the top 10 holdings of UYG in portfolio-weighted order) show the financials sector is already enticingly oversold, but bearish stocks (and sectors) can remain oversold for extensive periods of time.