S&P 500 e-mini futures, including overnight trading, 1-month view, 1-hour bar:
Interactive Brokers
-
The story here is that nothing is confirmed yet. The megaphone pattern (expanding upward wedge) hasn’t been busted, so we could still make a new high here, though the strength of such an advance should be weak. Each leg up for the past several weeks has sported weaker internals, such as a lower advance/decline ratio.
Based on internals, sentiment indictors and the action in other asset classes, I think the top was made about 10 days ago, but you never know. Don’t get caught in a bear trap.
By the way, this is what a busted megaphone looks like (Eurostoxx 50, 1 month chart):
Lawsuit Filed against ProShares
August 7, 2009
“SAN DIEGO (ETFguide.com) – A lawsuit seeking class-action standing against ProShare Advisors, sponsor of the ProShares ETFs has been filed.
The suit filed by New York, NY-based Labaton Sucharow alleges ProShares violated securities law and didn’t properly disclose all the risks associated with its UltraShort Real Estate ETF (NYSEArca: SRS) in its prospectus and registration filings with the Securities and Exchange Commission.
SRS is designed to deliver double the daily inverse performance of the Dow Jones U.S. Real Estate Index. Over longer time periods, however, it’s failed to do so. This is not unusual though, because the impact of index volatility, tracking error and fees compounded over time often causes the longer-term performance of such funds to deviate from daily index returns.
The one-year performance through June 30th, 2009 for the Dow Jones U.S. Real Estate Index is negative 42.59%. Over the same period of time, SRS has fallen by 79.73%. Currently, SRS has around $1.2 billion in assets.
The lawsuit is another dramatic turn in a series of recent events that has seen leveraged and short ETFs come under fire.
In June, the Financial Industry Regulatory Authority (Finra) issued a regulatory warning to brokerage firms and brokers concerning these particular ETFs. It said in part, “Inverse and leveraged ETFs typically are not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.”
Negative publicity still hasn’t quelled investor’s appetite for leveraged and short ETFs.
At the end of June, the two largest providers of these specialized ETFs (ProShares and Direxion Shares) amassed $32.6 billion in such funds.
Despite soaring assets and popularity among active traders, a number of brokerage firms like Ameriprise, Edward Jones, LPL Financial, Morgan Stanley and UBS have either banned or temporarily halted the sale of leveraged ETFs. Firms say this stance against leveraged ETFs is because they aren’t compatible with the long-term investment objectives of their clients.
The class action lawsuit was filed in the United States District Court for the Southern District. “
Watch Out – Even This Rally Parallels The Great Depression
http://www.etfguide.com/research/207/8/Watch-Out—Even-This-Rally-Parallels-The-Great-Depression/
Next Bubble to Burst Is Banks’ Big Loan Values:
http://bloomberg.com/apps/news?pid=20601039&sid=a04oVutXQybk
Robert Prechter on CNBC today:
oops, embedding didn’t work… here’s the link to the page:
http://www.cnbc.com/id/15840232?video=1217397249&play=1
Mike: question for you as I cannot find the answer. Would you know why the futures on US indices have consistently traded under the level of the actual spot index for many months now?
I don’t get it…
With interest rates near zero, the carrying cost of the underlying basket of stocks which comprises the index is also near zero. Since the futures do not pay dividends, they trade at a discount to the underlying index, which does pay dividends.
The relationship between the stock index futures price and the underlying index is driven by short-term interest rates (which represent the cost to borrow the money needed to buy the entire basket of stocks, instead of putting up some minimal futures margin), and market expectations of dividends (the higher the expected dividends, the greater the discount on the futures contract).
Graphite: Very good points.
I was just thinking that interest rates are close to zero, but that the dividend yield as well, so that the two would compensate each other.
But maybe not then!