Friday, February 6, 2009

This one looks a lot like the RTP discussed yesterday. Its symbol is FAS.

FAS is a really fast investment vehicle; a three x leveraged ETF.

What does that mean? Glad you asked! One might on average, expect a stock to move several percentage points each day. A very low Beta stock will move precious little, a high Beta stock will move a lot. My experience with a few favourites indicates about 4% is the most one might expect on an average day.

An ETF is a somewhat diversified collection of stocks, therefore again, a 4% move is what I can reasonably hope for. Since an ETF is a collection of things, and some will move up while some will move down, 4% might be a bit aggressive. (Beginning to sound boring?)

To make this ETF more exciting, it has a leverage of times three. For every dollar moved, the ETF gains three. That in mind, on an average day, we can now hope to see a 12 perscent movement of FAS. On fantastic days, I have seen twice that.

Looking at the chart, we can see that familiar saucer pattern, and, it is within a W pattern. For that reason, I own this vehicle in two different accounts and plan to hold for up to several weeks.

FAS is a financial sector ETF, and that whole industry has been badly beaten up. Even more bad news came out earlier today, so there is substantial risk in the investment. Politics plays a big part in that risk, in fact, the current value of this ETF and the underlying stocks are probably as politically weighted as the underlying fundamentals.

Last night, the news indicates a lean towards changing the spending bill into a bail out bill. If that holds true, this investment could be a very good thing indeed!

Risk is mitigated by the fact that this ETF is diversified across the sector. Some of the holdings are not affected by housing market and credit problems. Those financial instututes should be enjoying the low cost of credit and customers who realize their inherent stability and strong management teams.

Another thing
While studying any chart, it is also important to look at volume. The attached chart indicates lots of traders becoming VERY interested. That's a good thing.

Since most of the volume looks like strong buyers, the pattern is being confirmed!

More options
The ETF that trades under the symbol XLF enjoys the same pattern but is only leveraged once.

UYG is the ProShares offering and is leveraged by a power of two.


  1. mike,
    This saucer pattern business, I don't think I've heard of it. I'm wondering what the Japanese counterpart may be.
    Can you elaborate.

  2. Not sure about a Japanese counterpart but I have read about the saucer pattern in several books. Here is a link to an Investors Business Daily article that should answer much of your concerns.