InvestMacro

By Ino.com

In July, AXS Investments debuted US-based investors’ first single stock Exchange Traded Funds. These ETFs allow investors to gain leverage on certain individual stocks.

However, because you are using leverage, there is more risk involved, and the authorities want investors to understand these risks before purchasing these new products.

The risks are associated with the leveraged exposure these new ETFs offer and the risk associated with investing in individual stocks. But since leverage is being applied, the risk level multiplies.

For example, one of the new ETFs being offered is the AXS 2X NKE Bull Daily ETF (NKEL) which provides investors 2X leverage to Nike (NKE) stock. This would mean that if you owned NKEL on a day when Nike stock increased by 0.50%, the NKEL ETF, which is 2X leverage, will go up 1.00%.

But, the opposite is also true. So if Nike stock fell by 1%, the NKEL ETF, which tracks Nike stock at a 2X leveraged ratio, would lose 2%.

Leverage is a very nice thing to have when it is being applied in the direction you want it to move. But leverage can be deadly when it is going against you.

Hence why the Securities and Exchange Commission is warning investors of the dangers associated with any single stock ETF, even if it is not marketing itself as leveraged.

One example of a new single stock ETF that is not marketing itself as leveraged is the AXS TSLA Bear Daily ETF (TSLQ). This ETF only tracks Tesla, but to the downside with just 1X leveraged exposure.

This essentially means that the TSLQ is shorting Tesla. But, unlike having to short a stock, which would require approval from your broker, a margin account, and the risk of not losing more than 100% of your investment, you simply have to buy this one ETF and not worry about the other things.

AXS currently has eight single-stock ETFs:

The AXS TSLA Bear Daily ETF (TSLQ), shorts Tesla.
The AXS 1.25X NVDA Bear Daily ETF (NVDS) is short NVDA.
The AXS 1.5X PYPL Bear Daily ETF (PYPS) which shorts PayPal.
The AXS 1.5X PYPL Bull Daily ETF (PYPT) which is long PayPal.
The AXS 2X NKE Bear Daily ETF (NKEQ) which is short Nike.
The AXS 2X NKE Bull Daily ETF (NKEL) which is bullish Nike.
The AXS 2X PFE Bear Daily ETF (PFES) is short Pfizer.
The AXS 2X PFE Bull Daily ETF (PFEL) is long Pfizer.

The leveraged ones have the amount of leverage they are providing in the name of the ETF. But all the funds currently charge a 1.15% expense ratio and are intended to be held one day at a time due to the contango effect caused by gaining leverage or the inversion.

More single stock leveraged and inverse ETFs are coming to the market as Direxion, GraniteShares, and Kurv Investment Management all have filed with the SEC to be permitted to offer their own single stock ETFs.

The filing shows that roughly 35 stocks will have a corresponding ETF, with some being blue chip stocks, some in the technology world, some in energy, and even some that are just very volatile stocks.

Investors are and will continue to be given a lot of opportunities to invest with leverage and make ‘bets’ on the direction of individual stocks.

But, just because you can do something does not always mean you should do it.

Learn more about the risks of investing in these ETFs and how contango will affect your investment if you hold these ETFs for longer than one day at a time before owning these single stock ETFs.

Matt Thalman
INO.com Contributor
Follow me on Twitter @mthalman5513

Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

By Ino.com – See our Trader Blog, INO TV Free & Market Analysis Alerts

Source: Single Stock ETFs Are Here

By ForexTime

The S&P 500 index is widely used as the benchmark to gauge how overall US stocks are performing.

And much has already been made about the selloff that had persisted through the first half of this year, driven by fears that the Fed will send US interest rates soaring (which it has, by 225 basis points since March).

Since posting a record high early this year, this blue-chip index then fell by as much as 23.55% on June 16th, crossing over into ‘bear market’ territory.

However, since mid-June, the S&P 500 has climbed by 14.8%. Yesterday (Wednesday, August 10th), this index posted its highest closing price since May.

The question now that’s being hotly debated now is whether the worst of the US stock market’s selloff is already over.

And markets are watching closely whether we’ll see a key piece of technical evidence on the S&P 500 today that could help substantially address that very question.

But first … let’s try and understand what may be contributing to the S&P 500’s gains over the past couple of months.

What’s driving this rebound in the S&P 500?

Arguably, the primary reason is that markets believe that the Fed has done the largest chunks of its rate hikes already.

Since March, the Fed has already hiked by 225 basis points. At the time of writing, markets think there are only 125 basis points in hikes left in the Fed’s tank, to be triggered between next month and March 2023.

After that, markets think the US central bank then has to start unwinding its rate hikes (i.e. lower interest rates) sometime in the middle of next year, so as to either avoid sending the US into a full-blown recession, or at least support the demand that the Fed has already gone about destroying in the name of quelling red-hot inflation.

• Feb. 10: Inflation everywhere! What does it mean for markets?
• June 23: What is a recession?

Recall that, generally speaking, riskier assets such as stocks dislike the thought of US interest rates moving higher.

However, if the worst of those fears (markets at one point thought that the Fed would trigger a gargantuan 100 bps hike) had already been priced in, any relief from such perceived worst-case scenarios should translate into a recovery for risk assets.

Hence, investors have been emboldened by the above narrative, and have been rewarded (so far) for “buying the dip”.

Which brings us back to the main question …

Is the worst of this year’s selloff over for the S&P 500?

And here’s the important technical indicator that could confirm whether that the mid-June low of 3637.3 would be the lowest point for the S&P 500 for this latest selloff.

 

The S&P 500 has to register a daily close above 50% Fibonacci retracement level!

Looking back at the chart above, the S&P 500 has already managed to breach the 4228.6 line, which marks the halfway point from its peak-to-trough plummet in the first half of this year.

According to data compiled by CFRA (research firm) and S&P Global (ratings, analytics, and market intelligence agency), in 18 of the 19 bear markets witnessed since World War 2 (with the exception being the bear market of 1973-1974), the S&P 500 goes on to make a recovery/mark a new bull run once it closes back above its 50% Fibonacci retracement line.

In other words, once the S&P 500 secures a daily close above 4228.6, market participants can then say with greater confidence that the market bottom is indeed in the past.

But wait, there’s more …

Also, the S&P 500 has already posted a higher-high above the late-May cycle peak of 4205.7.

Such a technical event may carry less weight compared to a daily close above the 50% Fib retracement level, but can be used as a point in deciphering whether the S&P 500’s downtrend has been broken.

But let’s be careful.

To be clear, markets never move in a single, straight line.

And also from a technical perspective, the S&P 500 may be due for a pullback, given that its 14-day relative strength index is now flirting with the 70 mark that denotes ‘overbought’ conditions.

So it’s still entirely possible that the S&P 500 falters back below 4228.6, even after a daily close above that mark.

Instead, the idea is that the S&P 500 will not fall lower than the mid-June bottom of 3637.3 if the index posts a daily close above that 50% retracement level of 4228.6 (or so suggest the proponents of such a signal).

S&P 500 still at the mercy of the Fed/US economy

Risk assets have in the past two months clearly basked in the thought that the incoming Fed rate hikes would be fewer and smaller from here on out.

Such a notion was emboldened by yesterday’s (Wednesday, August 10th) lower-than-expected headline US inflation print.

The consumer price index (CPI) “only” rose by 8.5%. That is lower than almost all economists’ had forecasted (at least those surveyed by Bloomberg), and also lower than June’s year-on-year CPI advance of 9.1%.

Those participating in recent gains appear to harbour the belief that US inflation has peaked, which in turn may allow the Fed to step away from being so aggressive in its battle against multi-decade high inflation.

And so, it remains to be seen whether US inflation has truly peaked. Also, whether a full-blown, risk-off recession could undermine the S&P 500’s attempts at a full recovery.

More confirmation could be had at these upcoming economic events:

• August 25-27: Fed’s Jackson Hole Symposium
  (where central bankers gather to talk about issues pertaining to the economy and monetary policy. More clues about the Fed’s view on inflation/rate hikes?)
• September 2: US August nonfarm payrolls report
  (can the US jobs market stay resilient enough to handle US interest rates going much higher?)
• September 13: US August CPI release
  (a print below July’s 8.5% may confirm that inflation in the world’s largest economy has indeed peaked)
• September 21: FOMC meeting
  (Fed to hike by 75bps? Or “just” 50bps?)

So stay alert and watch this space.

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

“Oftentimes, rallies will end with an inter-index non-confirmation”

By Elliott Wave International

A long-long time ago in a galaxy far away… errr, on the heels of the year 2000 dot-com crash, to be exact — which is ancient history for many investors today — the February 2003 Elliott Wave Theorist, a monthly publication which has covered financial markets and major cultural trends since 1979, published an interview with Elliott Wave International President Robert Prechter.

Prechter was asked if he was surprised by investors’ lack of capitulation since the bear market started in 2000.

Prechter replied:

I read a statistic that said no more than 1 to 1½% of investors actually got out. This is utterly typical. The average investor stays in. [emphasis added]

This is mentioned because the patterns of investor psychology tend to repeat, which is the entire basis of Elliott wave analysis, which helps you track those patterns on the scale from intraday to multi-century.

So, with that in mind, consider what the July 2022 Elliott Wave Financial Forecast, a monthly publication which focuses on major U.S. financial markets, says:

Even as stocks fell hard into the middle of June, the bullish resolve of investors remained on display. On June 14, for instance, Bloomberg reported that “Undeterred Retail Traders Piled into Stocks.”

The chances are high that many of these investors will hold onto their stocks into the worst part of the bear market, if indeed the January top in stocks marked the end of the long bull market.

By one measure, investors know that the S&P 500 had already suffered at least a minimum bear market because in June, the index had declined 25% from its January all-time high. Of course, a 20% decline is widely considered to be the “official” entry into a bear market.

Since June 17, however, the index has rallied.

The question is: Is the bear market over, or is the price climb since June 17 a countertrend rally in a bigger bear market?

Well, if indeed the rally is countertrend, the August 1 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which offers near-term analysis of key U.S. financial markets, provided a clue on how to possibly ascertain the end of the rally:

Oftentimes, rallies will end with an inter-index non-confirmation, where one or more stock index will fail to confirm the final rally high in the other indexes.

Elliott Wave International’s analysts show you where the various related indexes are right now in relation to each other in EWI’s publications. EWI’s analysts also show what the Elliott wave model is revealing about the price pattern of the main indexes.

The whole idea is to make sure you’re among the 1.5% of investors who are on the sidelines if a bigger bear market has yet to unfold.

If you’re new to Elliott wave analysis, you are encouraged to read Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

After you have acquired an Elliott “touch,” it will be forever with you, just as a child who learns to ride a bicycle never forgets. Thereafter, catching a turn becomes a fairly common experience and not really too difficult. Furthermore, by giving you a feeling of confidence as to where you are in the progress of the market, a knowledge of Elliott can prepare you psychologically for the fluctuating nature of price movement and free you from sharing the widely practiced analytical error of forever projecting today’s trends linearly into the future. Most important, the Wave Principle often indicates in advance the relative magnitude of the next period of market progress or regress. Living in harmony with those trends can make the difference between success and failure in financial affairs.

Good news: You can access the entire online version of the book for free once you become a member of Club EWI, the world’s largest Elliott wave educational community (about 500,000 worldwide members and growing).

You can join Club EWI for free, and members get complimentary access to an array of Elliott wave resources on financial markets and investing, which includes videos and exclusive interviews with Elliott Wave International’s analysts.

If you’re already familiar with Elliott wave analysis and you love “free,” the chances are high that you’ll love Club EWI.

Jump on the Club EWI bandwagon by following this link: Elliott Wave Principle: Key to Market Behavior — get instant access.

R.N. Elliott’s stock market observations fell together “into a general set of principles”

By Elliott Wave International

It’s understandable why investors with little experience consult the market opinions of professionals.

But many of these new investors are left scratching their heads. Two headlines from July 29 indicate why:

• [Fundstrat Managing Partner] says the 2022 bear market is over, stocks could hit new highs before year-end (CNBC)
• Stock market’s post-Fed bounce is a ‘trap,’ says Morgan Stanley’s [Chief Investment Officer] (Marketwatch]

Yes, two directly opposing opinions that were published on the same day.

The date before those headlines published (July 28), happened to be Ralph Nelson Elliott’s 151st birthday.

You may be interested in his discovery about stock market behavior because it offers an alternative to consulting mainstream financial stories.

Here’s a brief overview: In the 1930s, Ralph Nelson Elliott (1871-1948) discovered that the stock market moves in recurring patterns that he called waves.

Elliott had led an active life as an accountant and management consultant, working at various times for railroad companies in Mexico, Central America and South America, a business magazine, and for the State Department before becoming seriously ill with pernicious anemia.

In the book, R.N. Elliott’s Masterworks, Elliott Wave International President Robert Prechter describes what happened next:

Despite being physically debilitated by his malady, Elliott needed something to occupy his acute mind while recuperating between its worst attacks. … It was around 1932 that Elliott began turning his full attention to … finding out whether there was any rhyme or reason to the stock market. …

Around May 1934 … his numerous observations of general stock market behavior began falling together into a general set of principles that applied to all degrees of wave movement in the stock price averages.

Elliott’s insights continue to be employed by investors today.

The basic Elliott wave pattern consists of five subwaves (denoted by numbers) which move in the same direction as the trend of the next larger size and three corrective subwaves (denoted by letters) which move against the trend of the next larger size:

When this initial eight-wave cycle such as shown by the illustration ends, a similar cycle begins.

In other words, the basic Elliott wave pattern links to form five- and three-wave structures of increasingly larger size.

An important point is that the Wave Principle helps investors to identify turning points in the trends of financial markets.

Indeed, here’s a quote from Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior:

When after a while the apparent jumble gels into a clear picture, the probability that a turning point is at hand can suddenly and excitingly rise to nearly 100%. It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

Here’s the good news: You can access the entire online version of the book for free once you become a member of Club EWI, the world’s largest Elliott wave educational community.

Club EWI is free to join without any obligations and members enjoy free access to Elliott wave resources on financial markets and investing, including exclusive articles and interviews with Elliott Wave International’s analysts.

Click on the link to get started right away: Elliott Wave Principle: Key to Market Behavior — get free and instant access.