ETFs - New Kids on the Block

Two new ETFs began trading this week - both in the microcap universe. They are Barclays Global Investors' iShares Russell Microcap Index Fund (IWC) and PowerShares Capital Managements' PowerShares Zacks Micro Cap Portfolio (PZI).

IWC includes only the stocks in Russell Microcap index. The index has 2000 stocks with market value between $50 million and $500 million, but the ETF holds only about 1,250 most liquid names. PZI is designed to track Zach's Research's Zach Micro Cap Index.

ETFs are great financial inventions because they democratizes the investment process. ETFs allow regular investors to get exposures - for hedging or speculating purpose - to different markets and segments of the markets very easily. Here is the list of ETFs on yahoo!.

Commentary - Revisiting the Oil Story

Oil price hit another record high TODAY. There is a story that goes along with every new high in oil price. This time, it is the International Energy Agency (IEA), the buyers' group, as opposed to producers' group called OPEC, reducing their forecast for non-OPEC oil production. Duh! that's NOT news because the main non-OPEC producer is Russia. And if anyone reads newspaper knows what's going on there especially in the energy sector. Other previously citied reasons for jumps in oil price include (1) Atlantic hurricane season (2) Chinese GDP growth (3) oil inventories (4) refiners capacity (5) hot summer/cold winter in the US northeast, and the list goes on.

The gist of the oil story is NOT the downward revision in the IEA forecast but that in technical-speak there is a major up-trend in oil price. I was not an oil-bull (see my previous blog) but now I am not so sure. I sense something has changed in the oil market. My guess is that this uptrend will continue until fundamental changes occur in the market sentiment. It is kind of scary to think but if this trend continues, oil will hit $100 by mid-2007 (see the chart).

It may not be too late to jump onto the oil bandwagon but the move has to be made opportunitistically. The good news is that Oil Securities Limited recently introduced the first oil ETF (OILB), which will make it very easy for regular investors to speculate on oil prices.

Trading Update - Technical Analysis at Work

I bought a stock around mid-day today on a purely technical ground and lost 1% of the value by the end of the day. Uh! That's painful but I still believe in my trade because my horizon is like 3-4 months.

My reasons for the purchase were,
(1) the company is not your speculative Internet company but Citigroup (C) - the financial behemoth valued around @ $224 billion. It definitely is not going broke anytime soon. The lowest it has gotten since the bubble-burst was $26 in fall 2002 - current price is $43.30. Since 2003, the price has cycled between $43 and $47.
(2) Weekly fibonnaci retracement shows strong resistance around $43 (see chart).
(3) Weekly moving average shows the stock bouncing off 200-week moving average line. Again that # is $43 (see chart).
(4) Daily RSI is in the 30s.
(4) Relative performance of financial sector is bottoming-out.
(6) On an intra-day basis, it looked like it broke the month-long downtrend around $42.70.

There are a couple of reasons why I could be wrong.
(1) If the recent high in early June becomes the right-shoulder of a head-and-shoulder formation then I may suffer significant loss in the near-term.
(2) Fundamentals
(a) flattening yield curve could offset stronger economy.
(b) Ain't a great fan of lawyers running banks - bankers should be running banks and lawyers, law firms.
(c) C doesn't have the catch of GS or MWD.
(3) Summer is fast coming to an end. Fall is not always great time for the stock market.

If my trade pans out, then there is 15%-20% upside in 3-4 months. Will see.