Fundamentals

The DIA (SPDR Dow Jones Industrial Average ETF), which currently trades a 12 times earnings is historically low for the average. The weak dollar could push earnings higher as most of these companies are growing their international earnings faster than U.S. earnings. This could cause the earning to mislead investors into thinking that earnings are growing when in fact the dollar is just cheaper allowing international companies to boost profits without boosting sales.

Technicals

Looking at the chart above, you can see the current trend is almost identical to the trend that crossed 11,000 in April. The current trend has yet to pull back or have a correction and stochastics trading at 93, the market looks to be overbought. Be aware: stochastics can be oversold or overbought for long periods of time. If you believe the Dow is going higher watch around the 11,200 level. If you believe the Dow is going lower watch the 10,700 level.

Other Factors

Jobs, jobs, jobs! If the job recovery doesn’t pick up, the market will stall out. Main street is still hurting no matter what the market is doing. Retail investors don’t want to be in stocks but rather in bonds. The so called “Currency War” that some are referring could really come back to hurt Americans and the U.S. Dollar. The dropping U.S. Dollar will make import prices higher, along with higher gas prices. Remember when looking at stocks or ETFs to look at more than just stocks, take a look at what else that could affect the potential stock or ETF.

Is Now The Time For Stocks

Stock Mutual fund inflows since May have been net negative, but could that be part of the “Sell in May, and go away” theory? The S&P that currently trades at 13X trailing twelve months (ttm) earnings might seem cheap to some, while others may say the earnings of the past twelve months are artificially inflated by government intervention. If you are in the bullish camp, look at individual stocks and make them give you a reason for buying them. The S&P 500 is still unable to stay above 1150 and until then the market looks range-bound.

Are You Afraid Of Stocks?

If you are afraid of stocks, the game is not over; you can still buy many different types of bonds. Although the returns are meager on bonds, they can and sometime will beat the overall stock market. Just remember as with stocks, the riskier the bond is, the more of a chance you have at losing money. Bonds are a great way to add income to your portfolio but some stocks and/or ETFs yield more than bonds.

Whichever way you decide to go whether long/short stocks or bonds, keep your portfolio diversified and have cash ready to make your next move.

Many stocks are trading at single digit P/E ratios and valuations that make the market look cheap. Although I am not too much into fundamental investing, I have to consider fundamentals when trading. Value investors are working overtime right now trying to distinguish whether these valuations are of actual value or whether they are pointing to a weaker earnings outlook.

What Am I Doing?

Sitting it out for now. If I am not in the market, I can’t lose money. I see companies hoarding cash, retailers reporting mixed numbers, employment not improving, and terrible housing data. The technicals of the markets say there is more room to the downside but with any earnings season around the corner, volatility is the only certain thing in the markets. Some stocks will win and others will lose, I will sit on the sidelines and wait.

ETFs Available To Trade Free Now

Schwab US Broad Market ETF (SCHB)
Schwab US Large-Cap ETF (SCHX)
Schwab US Small-Cap ETF (SCHA)
Schwab International Equity ETF (SCHF)

Available In December

Schwab US Large-Cap Growth ETF (SCHG)
Schwab US Large-Cap Value ETF (SCHV)
Schwab International Small Cap ETF (SCHC)
Schwab Emerging Markets Equity ETF (SCHE)

Are Charles Schwab’s ETFs Right For You?

If you are a investor looking for longer-term investments or trades and like using indexes; then these ETFs are worth looking at. For traders and shorter-term investors, the volume is too low for me to recommend them. When trading stocks and ETFs (other than the Schwab ETFs listed above), commissions rates are $8.95 – $19.95, depending on the amount of trades placed.

Understand that commission free trading is nice, but with Charles Schwab, you are limited to a few ETFs that you can trade. If the volume rises in these ETFs, it might be worth looking into. For now, the products are too limited and commissions on other ETFs and stocks are higher than most online brokers.

Get more information on opening an account and Charles Schwab ETFs @ www.schwab.com.

The Decade That Flat-lined

To me, the DOW crossing 10,000 means nothing fundamentally and technically it is another whole number to trade off. The DOW crossing 10,000 did not create any new jobs, nor did it help the declining dollar. As I mentioned earlier, the DOW crossed the 10,000 milestone 10 years ago. If you had put your money into an index fund 10 years ago, it has done nothing…not counting dividends. Dividends that, if reinvested, have lost value and taxes you paid on them probably wipes out anything you might have gained.

Dow 10,000 – The Second Time Around

With a decade of no performance, where do we really stand? Well, 10,000 today is not the same 10,000 as it were 10 years ago. Thanks to inflation, your investment in an index fund that tracks the DOW might have returned you the same dollar amount as you invested but it gave you a dollar with a significantly weaker buying power. Want to know more about the loss in your buying power? Head over to ZeroHedge.com and read an article called “DOW 10,000!!!! OhWait, Make That 7,537.”

Investing In Index Funds

If you are investing in index funds think about this post. Ten years of no gains and loss of buying power will make anyone poorer than they were 10 years ago. Do not get me wrong, I am not saying that index funds are a terrible investment. I am saying that the buy and hold theory should be history. A decade of losing 25% of your buying power and no investment gains is an obstacle you do not want in a retirement account.

Stop Orders

A stop order turns into a market order when the price level or percentage is breached, getting you out of a stock or ETF as soon as possible at the market price.

Example: You buy 10 shares of a stock at $10.00 and enter a stop order for 10 shares at $9.00 (or 10%, some brokers do not allow percentage.) The stock moves around before heading lower and breaching the stop set at $9.00. Your stop order now becomes a market order selling 10 shares at the market price.

Stop Limit Orders

A stop limit order is much like a stop order, expect when the stock breaches your stop price/percentage, it creates a limit order instead of a market order.

Example: You buy 10 share of a stock at $10 and enter a stop limit order to sell 10 shares when the price hits $9.00 and for the limit order, you enter $8.75. The price of the stock hits $9.00, which then creates a limit order to sell 10 shares at or above $8.75.

Note: With stop limit orders, if the stock gaps down overnight, you run the chance of not getting your order filled.

Trailing Stop Order

Trailing stop orders are for those who want to limit their losses and lock in profits without actively monitoring the stock market. A trailing stop order is a stop order that moves up with the price of the stock.

Example: You buy 10 shares of XYZ stock for $10.00 and enter a trailing stop order at $1.00 below the buy price. Your trailing stop order moves up with the price of the stock, never allowing your stop order to trail the price of the stock more than $1.00.

Trailing Stop Limit Order

A trailing stop limit order, like the trailing stop order, limits losses while locking in profits. A trailing stop limit order turns into a limit order upon breaching a specified price level.

Example: You buy 10 share of XYZ stock for $10.00 and enter a trailing stop limit order of $1.00 for the stop and $1.25 for the limit. If the stock never goes up and starts falling, you should get out at $8.75 or higher. As with the trailing stop order, a trailing stop limit follows the stock up never allowing your stop to lag the price of the stock more than stop limit, in this case $1.00. Now, say the stock moves up to $12.50, then turns around and starts dropping. The stock hits your trailing stop, which is now at $11.50. In theory, your limit order will get you out at $11.25 or higher.

NOTE: Like the stop limit order; if the stock gaps down, you take a chance of not getting your order filled, as the bid is lower than your limit.

Placing Your Order

Different brokers offer different types of stop orders and some broker have limitations on certain types of stops such as limiting trailing stop orders by only allowing you to place them if you have more than 100 shares. The stop order can be placed either on the bid, the ask, last price etc. Be sure to place the order according to your plan or research.

Shorting Stock and ETFs

Stop orders work with shorting stocks as well. Instead of the stop being below the price of the stock, it is above it. If you are shorting stocks, I highly recommend that you place some type of stop order.

Pay Attention To Volume

If the stock or ETF that you are trading or investing in has low volume, a stop order or trailing stop might get you out at a price way lower than expected. When trading lower volume stocks or ETFs, you should consider using stop limit and trailing stop limit orders.

JNK vs SPY

SPDR Capital High Yield Bond Portfolio ETF (JNK) gets it ticker from the bonds the ETF holds which are less than investment grade. Since they are less than investment grade, many refer to them as “junk bonds”. When compared to a two-year chart with the S&P 500, SPDR Capital High Yield Bond Portfolio ETF (JNK) outperformed the S&P 500 SPDR ETF (SPY). Not only did JNK significantly outperform but it also returned a monthly dividend currently yielding around 14%.

Other High Yield Bond ETFs

iShares iBoxx High Yield Corporate Bond ETF (HYG) and PowerShares High Yield Corporate Bong ETF (PHB) are two more ways to play high yield bonds as they track different indexes and currently yield 10.5% and 11.26%, respectively.

DISCLAIMER: I do own shares of JNK.

Brazil

Brazil is my least favorite of the BRICs but still offers a chance to make money. The ETF that I use for trading Brazil is iShares Brazil Index ETF (EWZ). EWZ is a trade rather than an investment because of its exposure to oil and currency. Some may like EWZ for an investment; I would rather play individual stocks for investing in Brazil.

Russia

If commodities are not in play, watch out for Russia. Although, Russia offers opportunity, it is highly exposed to oil. If the rapid growth 0f China and India continues, they will need oil to fuel their growth. Market Vectors Russia ETF (RSX) will get you in the Russian trade.

India

India is right there with China in terms of growth. Not many economies are still producing a positive GDP (gross domestic product), India along with China are. If you already have a position in China, start building a position in India using the WisdomTree Earnings Weighted India ETF (EPI).

China ETF

China is my favorite of the BRICs as China has the highest growth rate and expectations. China, with the largest population in the world, a growing middle class, and manufacturing that the world depends on, offers a great investment opportunity. Investors that want exposure to China can do so through iShares China 25 ETF (FXI). This ETF invests in the top 25 largest and liquid Chinese companies.

Exposure To All BRICs Through One ETF

If you are looking for one ETF to get exposure to all the BRICs, try Claymore BRIC ETF (EEB).

BRICs Are Great For Trades And Investments

These ETFs make for great investments and trades but please understand the risk associated with each. The ETFs listed are not the only ETFs to get exposure to the BRICs but are ETFs with good volume levels, making it easier to get in and out.

What is the VIX?

The VIX is an index that tracks market volatility of the S&P 500. The VIX, also known as the “fear index,” shows whether there is more optimism or pessimism in the S&P 500. The higher the VIX the more pessimism or “fear” is in the S&P 500. The VIX indicates how many people are buying put options. The higher the VIX is the more people are buying puts. There are two main reasons to buy puts, one is to protect open positions and the other is to speculate on a downward move.

Two ETNs To Trade Market Volatility

• Short-Term Volatility
  iPath S&P 500 VIX Short-Term Futures ETN (VXX) which buys rolling long positions in the VIX futures in the first and second month. Looking at the chart below, you can see the negative correlation to the S&P 500.
  
• Mid-Term Volatility
  iPath S&P 500 VIX Mid-Term Futures ETN (VXZ) also buys rolling long positions in the VIX futures but instead only has positions in the fourth, fifth, sixth, and seventh month.

Market Volatility Is A Trade Not An Investment

If you buy one of these ETNs, do so to hedge long positions or short the market, not an investment for the long term. Use these ETNs as trades only.

Buy Gold

One of the safest and most popular ways to trade or protect your portfolio from inflation is investing in or trading gold. The easiest way to invest or trade gold is through the SPDR Gold Trust ETF (GLD). Looking at the chart below you can see the GLD has performed well gaining 60% over the last three years when compared to the dollar at which lost 6%. If you are looking for another way to trade gold, try looking at the Market Vectors Gold Miners ETF (GDX). Gold miners significantly increase their profits when inflation picks up; as gold moves up, mining companies profit margins expand.

Treasury Inflation-Protected Securities

Treasury Inflation Protected Securities are another way to trade inflation. ETFs like iShares Treasury Inflation-Protected Securities ETF (TIP) give you a real rate of return, do not expect to make a significant amount of money here but rather reserve the value of what you have. What happens when global inflation occurs? Try looking at global ETFs like SPDR DB International Government Inflation-Protected Bond ETF (WIP) track global inflation. Looking at the chart below again you can see TIP outperformed the dollar returning 16% while the dollar lost 6%.

Buy Commodities ETFs

Commodities are a great way to trade inflation. Commodities tend to move more rapidly than the other two ways mentioned above. Commodities ETFs like PowerShares DB Commodities Index ETF (DBC) have big price swings and should be traded and watched carefully. Buying into commodities at the wrong time can devastate a portfolio but when used right they can produce huge gains. You might want to buy the individual commodities like crude oil along with a gold ETF previously mentioned.

Whatever ETF or tracks you choose to use, do your research before getting into them. Make sure you have a good case for an increase in inflation. These ETFs will not do much good to you in a deflationary period.