Lately I’ve been trading the FAS and the FAZ with some success, and I want to share my trading strategies with those looking for some fast action.
The financial sector has been extremely volatile of late, and lends itself to trading, especially when you use the triple leveraged ETFs to do so.
Here are the symbols- FAS and FAZ- FAS is the triple leveraged long, and FAZ and is the triple leveraged short. Last week I notched about a $5k gain going long FAZ (which is betting the sector will go down) at about $29. I sold at about $34 on Friday.
I believe there is enormous upside in the financial sector. I have written extensively about mark to the market on the balance sheets of the banks, and Congress is even poking it’s unwelcome nose into this situation.
The banks are being forced to mark their mortgage portfolios down to absurd levels, and this is creating a hidden asset and a lot of upside in this beaten down sector.
There are three events that could take FAS (the triple leveraged ETF) from the current $5 level to about $20-
The three events would be a modification of the Mark to the Market accounting standards, the restoration of the uptick rule, and the SEC eliminating the rampant naked short selling.
After a big run up in the financials, I’m looking for a good entry level to get long again. I believe it will be about $4.50 on the FAS.
Here’s the chart. As you can see, in only nine trading days, this thing motored from $2.20 to $7.80- that’s some big action.
Last week the financials gave back some of these gains.
When I see this particular ETF back in the mid 4′s, I’m going to get very interested, and probably load up.
The correction was overdue. You should be aware this ETF is extremely volatile, so this idea is not for those without a strong stomach and a disciplined ability to keep the emotions out of it.
$4.25 to $4.50 is your entry level on a pullback next week. Stay tuned and we’ll see what happens.
Comments and questions are welcome.
Weekend news reports have the Treasury Secretary unveiling plans for the government to help relieve banks of their toxic mortgage assets. It seems this would give a huge lift to the financials. What is your take on this. Thanks for knowledge
Editor: I’ll be anxious to see the chart I have often shown on the AAA post 2006 mortgages. I’d like to see if those mortgages are moving up. So, far the market likes it a lot. I’d like to see if it puts a real bid in these mortgages. At first blush, it seems like the first real solution to me. There’s one issue- this program is not going to offer higher prices- just liquidity at the market. However, by the time it’s put in place the market could be higher.
As it relates specifically to trading, I’m going to be looking to go long FAZ- the inverse triple on the financials- it’s a bet financials will go down. I bought this last week at $29, and sold at about $34 a few days later. I’m still going to be patient and wait for a pullback to go long. Long term, this seems like a pretty good plan- I’m sure there will be plenty of detractors.
With ETF’s trading,is there nan extra charge by your broker?
Editor: No- they are no different than any stock from a trading perspective. This is why they are becoming so popular- no mutual fund type fees and total trade ability and liquidity any time you want.