Wednesday, 21 November 2012

FAZ - a touch lower

With the main indexes closing slightly higher, the 3x short financial ETF (FAZ) slipped another 0.5% lower. Despite the last few days though, FAZ remains above the important recent low in the $16s. A few daily closes over $20 would be a very natural 'chase it higher' level.

FAZ, daily


Its been a long time since I really looked at the 3x ETFs, and an even longer time since I personally traded them.

The infamous FAZ - by Direxion, was launched in Nov'2008 - ironically, at the very height of the financial crisis. Its been all downhill since then.

Indeed, Nov'20'th 2008, FAZ was $8650.    Today's close was $17.63

You will never find a better example of the statistical decay inherent in such leveraged derivative instruments.

FAZ @ Christmas

There are two very clear price levels to be aware of. A break into the 15s would be the last stop level for the longs, and the $20 level would be the line in the sand for those who are bullish financials - and thus short FAZ.

If my bearish outlook for the indexes is correct, then we should see FAZ break above $20 in December.

In the immediate term, if the indexes climb to around sp'1410/25 next week, FAZ is likely to slip a further 4-6%, to around 17.25/16.75. That would of course, take it kinda close to the recent lows.