Saturday, October 19, 2013

Are there any ETF's remaining to be heated as SPY breaking into new highs

With the red hot market today, are there anything left with good potential for long term investment but not too overbought? I found two ETF's that looked interesting: USO (Crude oil) & DXJ (Japanese stock market). Both of them have smaller correlations with the US stock market performance.

With energy stocks performing well and US dollar falling, I don't think USO will keep dropping, particularly if Chinese economy remains healthy. My guess of the weak USO is due to the improved prospects of peace in middle east (Iran). I read one article stating oil price could drop 20% or more if Iran's oil is available. That may lead USO to $29 level from current $36.45, a $7.00 drop. At current option price, it will take about 1 year of selling call options for around $0.40 premiums to break-even, if one enters USO from selling puts with a break-even price of around $35.00. With the outline shown in the study, it's probably worth try to sell some puts on USO soon if USO price rises next day.

DXJ chart looks similar to that of EWJ which follows the Japanese stock market index I believe. I choose DXJ because it's of higher price with more option strikes. My understanding is that they have an export driven economy which benefit from falling yen FXY: It's beneficial for the Japanese market if US dollar UUP behaves stronger than FXY. The low interest rate environment in Japan should be reflected in the rising of Japanese bond GJBL. As shown in the 2nd page of the study, Japanese bound ETF JGBL is currently outperforming US Bond. So it looks to me that Japanese market may continue to perform well since it shot up about one year ago when the current Japanese prime minister adopted a new economic policy to pump even more money into its already heavy debt economy.

No comments:

Post a Comment