Are you still recommending TZA based on your Market Timing Model having a sell signal?

Published : August 30 2010 at 14:54 ET

The model issued a sell signal on August 11. It is late to initiate a position in an inverse ETF at this stage. That said, one could, depending on their money management style, pyramid a position in an ETF provided they are showing a profit. Money management style depends on the degree of risk one is willing to take. For example, some investors are fine with holding just 2 or 3 individual stocks while others prefer to hold several or more. Of course, the more stocks one owns, the more eggs one has to watch. So one should be mindful of this and not hold too many eggs if it ends up costing them their focus.

The 3x ETF TZA is showing a profit of about 10% since it was recommended on August 11. Some conservative investors may wish to take half their profits here. Others may with to hold their whole position. Again, this is a matter of style. Some investors may have be holding what they would consider to be a half position, thus can sit tight. Others may have plunged into TZA and wish to take some of their profits off the table.

We are heading into Labor Day weekend. Fridays before Labor Day are often up days, and the trading volume this week could be light with some taking days off ahead of Labor Day. Thus the market could be subject to higher than normal volatility.

That said, countering the Friday before Labor day effect, the unemployment report is being released this Friday. It could offer a negative surprise as there have been increasing signs that unemployment figures, as well as other economic indicators, have been showing weakness, spurring discussion about the possibility of a second recession.

As always, it is best to focus on price/volume action of the indices and leading stocks, and not let possible news get in the way of judgement. Watch how the market indices and leading stocks react to the news. Price/volume will light the way.


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