Junior Gold ETF Continues To Outperform

Ever since the break out in late August the Junior Gold ETF - GDXJ has been strongly outperforming the Gold ETF - GLD. Since inception GDXJ is up about 62% versus a 25% rise in gold over the same period of time (since Nov 2009).

Junior gold stocks tend to perform best after a well established uptrend has already taken place in physical gold prices so many are looking for this out performance to continue for some time. They are extremely volatile however so even though they tend to outperform on the upside they normally under-perform when the market turns south so caution is in order. Since individual companies tend to be risky this explains why the Junior Mining ETF has been so popular, it's an easy way to diversify. Average daily volume has been running in excess of 2.2 million shares so that's incredibly strong for a Gold Mining ETF that's only a year old. It wasn't too long ago that investors would laugh when you mentioned mining stocks.

Here is the price chart for GDXJ since inception:

Oil ETFs Rally

This week the Crude Oil complex has been testing support similar to the way gold and silver tested support last week. Crude Oil found support at the 50 day simple moving average the way that gold did and is moving up sharply today.

There are several different ways to play a rise in crude oil prices. You can choose an unleveraged oil etf such as USO, USL or DBO. You can also choose the double oil etf UCO which has traded over 6.5 million shares today.

Yet another way to play is through by using an oil stock etf such as XLE or OIH. Of course the oil stocks also have their versions of Leveraged ETFs as well with the double leveraged - DIG (based on the DJ Oil and Gas Index and the triple leveraged ERX which is based on the Russell 1000 energy index.

So as you can see there are several investment alternatives across the entire risk spectrum for those who want to play a rise in crude oil prices.

Silver ETFs Explode Higher

Silver ETFs exploded higher today after holding support on a closing basis at the 20 day simple moving average. SLV, the most active Silver ETF has not closed below this level since the uptrend began in late August. Today on the news that Ireland would be bailed out all the precious metals (especially silver) blasted higher with SLV closing $1.35 higher (5.4%) and the Double Silver ETF AGQ up more than 10%. That is a tremendous move and it shows just how volatile the markets have become.

According to the last commitment of traders report, a couple large commercial banks are still holding enormous short positions. Whether or not they are eventually forced to cover those positions is probably the biggest unknown variable in this market. It will be fascinating to watch this unfold.

Update On Silver Mania 2

A few weeks ago I wrote a couple different pieces talking about the potential for another Silver Mania occurring. Silver had blasted up by 33% without the slightest hesitation along the way, something I hadn't witnessed in my 22 year trading career. Since then we formed a double top in the $25 area and tried to set back yesterday falling to just under $24 before Bernanke started talking.

Once again, Bernanke threw fuel on the fire and today all the gold and silver etfs are going through the roof. Let's face it, Bernanke is trying to use "trickle down" monetary policy to stimulate the job market the same way republicans used fiscal stimulus in the 80s. Whether or not that works one thing is for certain, it is fueling the fire in an already revved up precious metals market.

One thing I'm going to be watching is the latest release of the Commitment of Traders report, specifically the "Bank Participation Report" to see how much of the HUGE short position has been covered. In my opinion that has been the oxygen to go along with the Fed Fuel. The two combined have created an explosive combination.

Here is a reminder of what happened 30 years ago!

Precious Metals and Emerging Markets ETFs Hit New Highs

Luckily I was smart enough to use the $1 break in silver yesterday to take profits out of ZSL and I actually bought the Global X Silver Miners - SIL . I bought the miners this time instead of silver itself because in the later stages of precious metals rallies it's usually the mining stocks that go crazy. That doesn't mean this time can't be different but history is usually a pretty good guide. So far in this bull market the mining stocks have underperformed the precious metals.

Another area blasting to new highs "Post Bernanke" is the Emerging Markets ETF category. Whether you look at large cap or small caps most are hitting new highs today. The 3x leveraged etf EDC was up over 5% earlier today, quite a move!

Palladium ETF Continues To Outperform

Gold has been in the spotlight for several years and recently attention has turned to silver, but the real superstar of 2010 is actually Palladium.

As of the high yesterday at $65 the Palladium ETF (PALL) was up 50% year to date far out-pacing Gold which was up about 18% and even Silver which was up approximately 33%. The primary driver for this outperformance is the fact that industrial applications have been switching from Platinum to Palladium due to the fact that it's much cheaper.

If you are looking for market direction in the precious metals, keep an eye on palladium since it has been the market leader all year.

Double Top In Silver ETFs

Both of the most active silver etfs SLV and SIVR made a double top today. The high on SLV was 24.42 which was exactly the all time high, same with SIVR which reached 24.88 which was the all time high set a couple weeks ago.

The futures actually went to a new contract high early this morning before failing. When a contract goes to a new all time high and then fails I always called this the "Kiss Of Death Trade" because it is deadly accurate. Paul Tudor Jones used to love this trade where the professionals would push to new contract highs, triggering all the "Buy Stops" and then use that volume to establish short positions.

The way to trade this is to go short with a stop above today's high. If the market takes out the high today, odds are the trade is no good. I'm choosing to use the Short Silver ETF ZSL instead with a sell stop below today's low.

The beauty of the Kiss Of Death type trade is that the risk is normally quite small and if the trade turns out the gains are normally HUGE!

Short Bond ETF Review

With long term interest rates coming off historic lows and the fed pursuing an initiative to bring inflation rates back up to "normal", many people feel that a perfect storm is coming for the bond market. Anyone who has experienced these in the past knows how violent the bond market can retreat when inflation or even "inflation expectations" enter the picture.

If you are wanting to use a Short Bond ETF to capitalize on a collapse in bond prices you have 3 solid choices, it just depends on how much leverage you want to use.

TBF - Inverse Bond ETF (No Leverage)seeks to provide -100% of the daily performance of TLT

TBT - Double Short Bond ETF (2x Inverse) seeks to deliver -200% of the daily performance of TLT

TMV - Triple Short Bond ETF (3x Inverse) seeks to deliver -300% of the daily performance of the NYSE 30 Yr Treasury Index.


If you are not experienced with Short ETF products make sure you do your research before diving in. These ETFs are designed to track the "Daily" performance of the underlying security, so they reset each night after the close. This characteristic makes it a short term trading vehicle but not suitable for long term positions.

If you are expecting a sharp move lower in bonds, one of these could be a good way to play it. Just do your research first!

Big Day For "Beat Up" Leveraged Inverse ETFs

The big winners today were the Leveraged Inverse ETFs all of which have been pounded to death over the last 18 months. The 3 biggest winners were:

DTO (+10.07%) - ProShares Double Short Crude Oil ETN
EDZ (+9.67%) - Direxion 3x Leveraged Short Emerging Markets ETF
ZSL (+9.67%) - ProShares Ultra Short Silver ETF


All of these pops are strong "Counter Trend" reactions to the Chinese raising their key interest rate today which sparked a rally in the U.S. Dollar as well. Crude Oil, Emerging Markets and Silver have all been very strong performers the past 6 weeks in anticipation of the Federal Reserves QE2 Program.

Expect more volatility in the days ahead!

Double Silver ETF Interest Surges

I noticed yesterday lots of people were searching Google looking for a Double Silver ETF as we were getting higher than normal traffic from that keyword phrase. Hopefully they will just do their research and wait for a better entry point as silver has run over 30% in the last 6 weeks. I don't believe silver is done yet, but I've taken profits and will wait for a setback before buying anything!

That said, we have been waiting for a setback the past couple weeks to add to positions and never got it. It appears the major commercial banks that held about 1/3 of all the short positions in Comex Silver have been trying to get out. Could get pretty wild.

AGQ is the ticker symbol for the Double Silver ETF