ETF Ultra Short of Small Caps, TZA, versus S&P 500

Since I have held on to my TZA stock these past 2 months, I wanted to show my readers 2 charts which compare TZA versus the S&P 500 to give readers an idea where I believe TZA will go now. From the first chart of the S&P you can see in the chart below the first few data points in the beginning of April, the Index was between 825 and 840. The S&P closed yesterday at 889. I believe the S&P will go back down to test the 840 level again and it will break below that on its way to 800 and then we will see if it goes back to its lows of 666. That's right 666, a fitting number for the 52 week low as it felt like devils work indeed.


Now looking at TZA below, which is an ETF based upon the Russell Small Cap index, but is a triple short of it, you will see it closed yesterday at $23.63 and from the chart below, assuming all Indexes will retrace relatively the same, down, then you can see TZA should reach between $40 and $45/share. This would be roughly an 80% gain. If it goes back to the 52 week lows on the Russell Small Cap index, TZA could go well above $70 to $80/share, whatever the comparable reverse split will be.


Now I know the ETF's are all scheduled for a reverse split on July 8th so the numbers will be different but the value of the change should be about the same. It is something to look forward to, during which this time will be agonizing for many who have not hedged their gains these past 3 months. It will be the House of Pain, as Jim Cramer, host of CNBC's Mad Money program, refers to difficult market losing periods. I am hoping it will bring me and some of my followers who also own any ETF Ultra Shorts, to the House of Gain.

Market outlook going forward? Down in advance of the 3 day weekend.

Back on April 25th I said the following: "Gold closed yesterday at $914/ounce and 2 weeks ago it closed at $890/ounce. This is a 2.7% gain. The Dow didn't gain anything, the S&P500 gained only 1.2% and the Nasdaq gained 2.5%. Technology did the best in the markets, but not as good as did Gold. I have said to watch Gold prices to get a best sense of direction of the market. If Gold goes up, the markets will drop and if Gold drops the market should go up. I think there is a trend building for Gold's continued rise, going forward."

Gold closed today at $953/ounce, up $15/ounce in trading. I think we are still going higher!

On May 16th I said to watch the Tech sector. I said specifically the following: "Here, Jim Cramer of CNBC's Mad Money and I part ways, as he sees Tech stocks taking us higher. I see Tech stocks now leading us down as many take their profits from the lows. Besides, it is the closest Index to the 200 day Moving Average and is being pressed to go lower. Let's see if I'm correct. Stay tuned.

On May 9th, in my post on the "Put to Call ratio as an Indicator" I said the following:

The 200-day moving average is still trending downward. This tells me to hold off. It’s not yet time to jump back into the markets. This is not the time to buy & hold… not yet. Believe me, I’m watching this indicator closely.

Well on Friday May 8th the Dow closed at 8,574. Many analysts and investors then, including Jim Cramer, were telling people to jump into the market before the train leaves the station. Yesterday it closed at 8,292 and because we have a 3 day weekend because of Memorial Day, the Banks and the Stock market will be closed on Monday. Therefore many may not want to hold stock going into the long weekend and therefore it should be a down day today. Volume both on Wednesday and Thursday was higher than on Monday and Tuesday. So we have had dropping prices on higher Volume, a Bearish indicator.

I know it is easy to get caught up in the excitement when the market is rising and you're not in and invested. It has a way of enticing us in because we are afraid we might lose out on the gains. How do I know this? Because I have experienced the same thing in times past. But I realize that there must be logic and rationality and an over arching belief about current conditions in the world and the U.S to give validity to such hope and promise. That time will come. But it is not now. As long as you continue to see or hear about more layoffs and foreclosures at the clip we have seen recently, it can't be getting better any time soon. It may not get worse, but it is pretty bad now if you haven't noticed. We all have friends or family or neighbors who are unemployed and scared about finding a job, any job. And when the FED says things are going to be bad going forward, when they change their projections on unemployment and GDP, pay attention.

Futures point to a higher open today. But beware, it makes sense to me that the markets should close down for the 3 day weekend. The last hour will be what to watch. Oh and one last thing, the 3 Month LIBOR rate has dropped to 0.66%, which is unbelievably low. And speaking of banks, BankUnited FSB has been shut down by regulators. It is the largest bank to be closed down this year. It is located in Florida.

UPDATE 6:00am PST.

Art Cashin was just on CNBC and believes the market will close up today because he believes the Shorts will be nervous going into a long weekend. So there you have it. We are on opposite sides on this one. He is usually more correct in his market calls than I am. But one ting he did say was that yesterday there was markets were scared yesterday on the question of US AAA Rating by S&P could be downgraded. Later in the day the Ratings agency came out and said there was no merit to the rumors. However, Pimco's Mohammed El Erian, also on CNBC this morning, was concerned of the unintended consequences of government policies and the implications to the markets. So there seems enough concerns going forward to stay cautious and not just jump in and blow all your cash in the market.

Pre-Market outlook for May 18th and more! UPDATE

European markets are up in oversees markets going inot the open this morning. The Nikkei however lost over 200 points in overnight trading. Dow, Nasdaq and S&P Futures are pointing to an up market at the open helped along by several pieces of news. One piece of news is about India. The election win, of the party of the Prime Minister Singh's Congress Party, has resulted in the biggest gain in India's stock market. It gained 17% and the Rupee gained 3.6% while the Bond market declined sharply, as many Indians see more continued growth and prosperity under the ruling party, going forward. Trading was halted in their stock market because of the sharp surge in the Sensitive Index or Sensex. According to these news reports, markets are euphoric.

The other news is about 3 Month LIBOR rates. It is at the lowest level in a long time. According to news reports, "LIBOR has dropped more than two basis points for the past four days. The last time it fell so much was in the four days through Jan. 13.

Some measures show financial institutions are still wary of lending after banks racked up more than $1.4 trillion of writedowns and losses since the start of 2007."

Also reported in the same article was this little nugget of related news: "The drop in Libor has less to do with rising confidence among financial institutions than it does with surging customer deposits, Jim Vogel, an analyst at FTN Financial said last week. Deposits at U.S. banks jumped by almost $400 billion in the past six months, contributing to reduced demand for loans in the interbank market".

So it looks like the American Consumer has finally decided to save rather than spend. It is my view that this is a once in a generation shift in the mindset of Americans and this trend will not change for a very long time, just as it had affected the generation who lived through the Great Depression and Crash of 1929 and the 1930's. So don't be looking to Consumers to just go out and spend anytime soon. It is also worth noting that the Consumer is responsible for 70% of the growth in the economy. If there were ever something to worry about, this news tidbit is it.

The market may rise at the open today, because of the India news, but believe me this will be short lived. Today after the Bell, Lowe's reports earnings and tomorrow Home Depot. As Jim Cramer, of CNBC's Mad Money, has pointed out on his show last week, they are both over weighted in their footprints in Florida and California and will give a read on the two States economies. Heck, I can tell you things are bad in California and the State especially manifests these troubles as unless the Ballot measures approved by State Legislatures is approved by Voters in a Special Election tomorrow, the State will have to lay off thousands of teachers, sell prime property assets to private investors, and release tens of thousands of prisoners from jails, as it can't afford to keep them jailed.

Bad times are almost a given here in California as it has exemplified the Sub Prime problem in State government by always borrowing to help someone without thinking of how to pay for it. The latest read on the Special Election Ballot measures is that they will be defeated and the State will face draconian measures under Governor Arnold Schwarzenegger.

UPDATE: 8:15am PST

Market opened higher as expected. Lowe's announced earnings and they beat analysts expectations but Revenues were down over 6%. And while the stock is up $1.17/share to $19.62, there are concerns that they have not reduced their inventory fast enough to keep up with falling demand. So the question is will this be just a 1 or 2 day rally for the stock.

Setting the record straight on my recent stock market predictions

So here I am looking back at my recommendations going back to December. I wrote the following post on Jan. 5th as I was looking at my ETF Ultra Short Fund recommendation of SDS and TZA. Here is what I said:

"So I am taking the heat over my recommendation to buy the ETF Ultra Short SDS. Since I recommended the purchase the ETF around Dec. 6th the price was $70.50 (adjusted for the $11.50/share payout). Today the ETF closed at $65.70. Yes, it is down about 7%. But we are near the top of the range of the highs of the market in the Dow and SP500 as well as the Nasdaq and there has not been a clear breakout on strong volume. So I am still holding those shares. I have added to them several times since the beginning of December. The same is true for TZA, except it has lost more, because of its tripling effect. I had bought my shares at $53.50 and it closed today at $42.86. That's a paper loss of 20%. But I am willing to hold both of these 2 ETF's which Short the market because I fundamentally do not believe we are over the worst. There has not been a believable breakout, as I review the charts, and it is more like a creep up than a step up. You need to do what's right for you. I am doing what I believe will still be a profitable trade. Time will tell."

Well, I was looking at the current price of SDS and TZA and here's where they are now to close the loop on this recommendation. SDS is currently at $80/share and TZA hovering around $60. If you sold SDS now you would still have made over a 10% gain and same with TZA. I am choosing to continue to hold my shares because I think I can do better, but my commitment to try to get you at least 10% profit has been fulfilled today if you sold or are selling.

On Jan/ 7th I wrote:
We closed yesterday at 9015 on the Dow, 934.70 on the S&P500 and 1652 on the Nasdaq Composite. I expect us to go lower over the coming days. Expect the Dow to go down at least another 500 points this week, from where we are now (8777). I expect the S&P500 to go down below 880. The Dow has gone down to 8200 and the S&P has gone down to 840 currently.

I had said I thought MGM was overbought at $14/share recently and said it would go back down to $9.95/share and guess what? It has hit $9.95/share today.

So stick with me and bring your friends here. You can check out my predictions very easily, as I post often and my predictions and recommendations are Public record now. My style is different, but I share one thing in common with Jim Cramer of CNBC, I desire to help you preserve capital and grow back your nest egg. I get nothing out of this but the sheer pleasure of helping others. All the best!