Briefly: In our opinion, speculative long positions are favored (with stop-loss at 1,810, and profit target at 2,020, S&P 500 index)

Our intraday outlook is bullish, and our short-term outlook is bullish:

Intraday outlook (next 24 hours): bullish
Short-term outlook (next 1-2 weeks): bullish
Medium-term outlook (next 1-3 months): bearish
Long-term outlook (next year): bullish

The U.S. stock market indexes gained 1.5-2.4% on Wednesday, as investors hunted for bargains, following recent move down. The S&P 500 index bounced off support level at around 1,860-1,870, marked by late August low. The nearest important level of resistance is at 1,950, and support level is currently at 1,900. There have been no confirmed positive signals so far, however, we can see some positive technical divergences:

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Expectations before the opening of today’s trading session are positive, with index futures currently up 0.6-0.8%. The European stock market indexes have gained 0.1-1.1% so far. Investors will now wait for some economic data announcements: Initial Claims at 8:30 a.m., ISM Index, Construction Spending at 10:00 a.m. The S&P 500 futures contract (CFD) trades within an intraday consolidation, following yesterday’s rebound. The nearest important level of resistance is at 1,930-1,950, marked by previous local highs. On the other hand, support level remains at 1,900, among others, as the 15-minute chart shows:

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The technology Nasdaq 100 futures contract (CFD) follows a similar path, as it currently trades along the level of 4,200. The nearest important level of support is at 4,150, as we can see on the 15-minute chart:

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Concluding, the broad stock market bounced off its medium-term support level yesterday, and the S&P 500 index broke above resistance level of 1,900. There have been no confirmed positive signals so far. However, we continue to maintain our already profitable speculative long position (1,881.90, S&P 500 index), as we expect an upward correction or downtrend reversal. Stop-loss is at 1,810, and potential profit target is at 2,020. You can trade S&P 500 index using futures contracts (S&P 500 futures contract – SP, E-mini S&P 500 futures contract – ES) or an ETF like the SPDR S&P 500 ETF – SPY. It is always important to set some exit price level in case some events cause the price to move in the unlikely direction. Having safety measures in place helps limit potential losses while letting the gains grow.

Thank you.

Why ETFs Are the First Step on the Road to Wealth

Ask me to name the greatest retail product to ever come out of Wall Street and I’ll point to exchange-traded funds – better known as ETFs.

ETFs are great for lots of reasons, but mostly because they are supreme Disruptors.

Their introduction in 1993 disrupted the staid, overly hyped, unnecessarily expensive, inefficient, self-serving, and much-too-opaque mutual fund industry.

Besides being financial-sector Disruptors, ETFs are extraordinary personal Disruptors. And as I’ll be showing you in the months to come, whenever you find a spot where two or more Disruptors/catalysts converge, you’ve also identified your biggest Extreme Profit opportunities.

Today I want to show you how to employ this Disruptanomics “one-two punch” to your maximum personal advantage.

It will uncomplicate your financial life by establishing a foundation for your Extreme Profit investments.

And that will set you up for Extreme Wealth.

We’ll set you up for all of this… one step at a time…

Why I Dig ETFs

Let me start by openly admitting my bias: I love ETFs… even more than I’ve always disliked conventional mutual funds.

That “bias” is actually a big part of the reason I view ETFs as such a foundation for meaningful wealth.

During my time as a professional trader, you see, I would never place my money where I couldn’t see what someone was doing with it, where it was expensive to park, or where I couldn’t – during market hours – turn my shares into cash when my indicators told me it was time to “take cover.”

In describing all those shortcomings, I’ve just described conventional mutual funds.

Lots of investors own mutual funds – because that’s what they were “sold” for many years by the industry that tried to enslave them.

The upshot: Those fund holders have no concept about how badly they’re being exploited.

Most mutual fund are way too expensive. Some also have sales charges and exit charges (called front and rear “loads” in broker parlance) and so-called 12b-1 fees and transaction charges.

Unless it’s an index fund, you’re only told what’s in your mutual fund portfolio every quarter – and even then there’s a 30-day time lag. With mutual funds, it’s possible to lose money on your investment and still have to pay capital-gains taxes.

And there’s the whole price realization uncertainty thing: Even if you sell a fund early in the trading day, you’re still going to get that evening’s closing price. That doesn’t do us a damn bit of good if we see the market slipping – and sell – only to have stocks plunge a few thousand points afterward.

No thank you.

Anatomy of a Winner

You have none of these issues with ETFs.

(I did detail some pricing issues in a report I shared last week, but those issues were limited to major “down” markets. And let’s face it: In a market that bad, you’ll have problems with investments of all types – not just ETFs.)

Exchange-traded funds are just better products.

ETF expense ratios are, on average, about half those of most managed mutual funds. According to Morningstar, the average expense ratio on a managed mutual fund is 1.42%. On an ETF, the average is 0.53%… but on most ETFs, the expense ratio is closer to 0.40%.

With ETFs, you know what’s in the underlying portfolio. Almost all ETF sponsors have product websites where you can see what’s in the fund portfolios. Even “managed ETFs” – which trade in and out of stocks – have to post their holdings every day.

You will have capital gains when you sell your ETFs – if you bought them at a lower price. So you won’t get socked with a capital-gains tax bill if you haven’t sold them, which happens too often with mutual funds.

Most important, for me, is that I can sell my ETFs any time during the day and know what price I’ve gotten. Sometimes you can trade ETFs before and after hours if there are buyers or sellers on the other side of your trade when the exchanges are closed.

There are all kinds of offerings, but one basic theme.

There are more than 1,500 ETFs in the market. Another 150 are introduced every year. Not all ETFs that make it to market live forever. More than a few die off every year – for different reasons – but mostly from lack of investor interest in them.

What makes the great majority of ETFs so valuable is that most of them are basically indexed products.

And they’re indexed in unique ways.

There are baskets of stocks, or futures, or bonds, or derivatives – or hard assets, such as physical gold – which make up underlying portfolios and represent an industry, an asset class, a country’s stock market… or even fixed-income securities of different yields, risk profiles, and maturities. Whatever the underlying “stuff” is in the portfolio, an ETF gives you specific exposure to what you want to trade or invest in.

The best examples of ETFs being mostly indexed products are the major market benchmark indexes. Those three ETF products are, in my professional opinion, the most important for investors and traders.

The “Big Three” ETFs

They’re always your best bet.

The best ETF to track and trade the benchmark Standard & Poor’s 500 Index happens to be the first ETF ever introduced – the SPDR S&P 500 Trust (NYSE: SPY), which made its debut back in 1993.

With $176 billion under management, SPY is huge. It’s also liquid – trading an average of more than 144 million shares daily. And it has a microscopic expense ratio of only 0.09%.

That makes it a winner in my book.

The best ETF to track and trade the Dow Jones Industrial Average is the SPDR Dow JonesIndustrial Average ETF (NYSE: DIA). DIA has $10.89 billion under management, trades more than 7 million shares a day, and has a 0.17% expense ratio.

The best ETF to track and trade the tech-focused Nasdaq Composite Index is the PowerShares QQQ Trust Series 1 (Nasdaq: QQQ). QQQ controls $38.32 billion, trades an average of nearly 40 million shares a day, and has a 0.20% expense ratio. QQQ is more than 60% technology stocks, with Apple Inc. (Nasdaq: AAPL) making up about 13% of its total weight.

Starting out, as everyday trading vehicles – as a way to invest long term in the market or as a hedge against falling stocks – these big benchmark index “stocks” are my go-to ETFs.

When I watch the market, I watch the Dow first (because that’s the index most news shows talk about and it’s the one the typical investor is the most in tune with), the S&P 500 second, and the Nasdaq third. These benchmarks are the U.S. market in most everybody’s mind. They’re all different, but all important.

Because the easiest and cheapest way to play the market – for you and for institutional money managers – is to buy one of these ETFs (depending which stock index you are interested in), they are super important to watch. I watch and trade all three ETFs.

I’m a big-picture trader. Because I trade a lot of money, the most important thing to me is being on the right side of the market. These three indexes and ETFs are “the stock market” to me – and to the money managers who trade U.S. stocks.

If you are on the right side of the market, it’s hard not to make money. The simplest way to make money is by buying one or all three of these cheap ETFs… when the market is going up. As a trader, that’s what I do. And if I don’t believe the trend will continue to go higher, I’ll sell.

And if I think the markets are headed lower, I’ll short these three ETFs.

The Simple Things…

Making money really is simple if you don’t complicate things. That’s why these ETFs, in particular, are so valuable. You’re watching the market and trading the same thing you’re watching. There’s no disconnect.

While there’s no disconnect between watching the market and trading an ETF that tracks it, ETFs can face intraday pricing disconnects when any of the underlying stocks or futures that make up the portfolio stop trading for any reason. I wrote about that last week and offered a solution.

Trading these big ETFs is easier than trading any stock because you’re trading the market. And the market is a lot easier to understand (as a giant entity) than a single public company that has products, management, and all kinds of “firm-specific” issues – including how its stock trades relative to other stocks in its industry and relative to the market.

Trading individual stocks is great, and, of course, I do that.

But there’s nothing easier than trading the market. That’s what I do most and make the most money doing.

If you want to make a lot of money and set yourself up to trade a lot more stocks a lot more successfully, start here. I promise you’ll become a much more profitable investor.

We’ll trade these ETFs together from now on. I’ll tell you exactly what I’m looking at, what I’m seeing, and how to make the same trades I would make.

This will serve as a foundation for other “Extreme Profit” trades that I’ll ferret out for you. In fact, having this base will make it easier to identify these other opportunities.

Consider it the first step on the road to wealth.

That’s why I love ETFs.

Follow us on Twitter @moneymorning.

What is an Exchange Traded Fund (ETF)?

Exchange Traded Funds or ETFs operate very much like mutual funds except that instead of taking in capital and issuing redemptions on a daily basis they are closed end which means they trade like a stock and are bought and sold on a normal stock exchange. ETFs can be actively or passively managed. They come in all types and at all risk levels. For our purposes, we are going to focus on passively managed indexed ETFs as a means of tracking the performance of a market, style or industry index.

How to Use ETFs?

Our discussion on ETFs will center on using them to create a passively managed segment of your portfolio. The purpose of the indexed ETF is that it tracks a particular index. For example, if you wanted to allocate 10% of a $100,000 portfolio to the TSX Composite index, then you could purchase $10,000 worth of units in an ETF like the S&P/TSX Capped Composite Index Fund which bears the trading symbol XIC. A quick look through iShares.com and you will quickly see that you have access to a wide range of indexed ETFs for virtually every industry in the Canadian market, U.S. based and global equities, as well as style funds, such as the Dividend Aristocrats Index. The same products are also available from other ETF providers such as www.vanguardcanada.ca as well as all of the major banks.

Passive Mutual Funds (Index Funds) versus ETFs

Although most mutual funds are actively managed, there is a certain class, indexed mutual funds, which provides the same type of passive stock market exposure as indexed ETFs. The difference between the two types of instruments is the structure. Indexed mutual funds are open end funds and receive contributions and redemptions on a daily basis. The fund itself manages these transactions and issues new fund units or redeems existing units for cash based on the daily calculated net asset value (NAV).

ETFs are closed end funds and maintain a consistent number of units which trade on an exchange like a regular stock. The ETF itself does not deal with contributions or redemptions on a daily basis. Just like with a stock, when you want to acquire units you buy them on an exchange and when you want to redeem you sell them on the exchange…the ETF itself doesn’t have anything to do with these transactions.
There is no clear answer for which is better – indexed funds or indexed ETFs. The open ended structure of the indexed mutual fund does require the fund to maintain a higher ongoing cash balance to ensure they can honour daily redemptions. This can create a “cash drag” as not all capital is fully invested and earning a return. ETFs don’t have to deal with daily redemptions and therefore don’t need to carry as much cash. Another interesting characteristic of ETFs is the ‘in kind’ redemption feature which provides tax deferral for unit holders. When an index fund sells stock to fulfill redemption requests, the capital gain tax liability is spread amongst the unit holders, regardless of whether or not they are redeeming. Investors in ETFs can realize return by either selling their units on the open market or by exercising the ‘in kind’ redemption, whereby they would receive a basket of securities proportional to their fractional interest of the securities owned by the ETF. For the “in kind” redemption, no tax liability is incurred unless sales from the basket of securities are made.

Understanding Discounts and Premiums

Another thing worth knowing is that because ETFs trade on an exchange, the price is determined by supply and demand and at times, ETF units can trade at a premium or a discount to their net asset value. Normally, this isn’t too much of a concern as discounts and premiums tend to be very marginal. However, it is worth noting whether you are paying a discount or a premium on the ETF when you purchase it. In general, indexed ETFs should trade at a very modest discount to their NAV.

Conclusion

Indexed Exchange Trade Funds (ETFs) can be highly efficient vehicles through which investors are able to purchase diversified exposure to an entire market index, sector, or geographic region. Benefits include a competitive fee structure, simplicity of trading, tax advantages over indexed mutual funds, and unique features such as in kind redemption. However, ETFs come in all types and risk levels and it is important that investors much understand the type of investment they are purchasing. We advocate the appropriate use of non-leveraged ETFs that are indexed to diversified indices, but warn investors against more exotic ETFs such as those that use leverage or are tied to the performance of commodities or other risky assets. 

Disclaimer | ©2015 KeyStone Financial Publishing Corp.

Once the pullback in the broad stock indices is over (more on that in a minute) — the Dow Jones Industrials will lead the way higher and catapult to 31,000 over the next two years.

What? Have I lost my mind? Or am I just some perennial stock market bull?

Neither is true. Quite the contrary, I’m simply one of the very few analysts who understands the forces that are building to send the Dow rocketing higher.

Moreover, I am not some perennial stock market bull. I foretold of the 1987 stock market crash months ahead of time. I forecast the 1999-2000 top in the Nasdaq and the Dow. 

I predicted the peak in the markets in 2007 … and the stock market bottom in 2009.

If I didn’t know better, I’d throw my hat in the ring with all those pundits out there who say the economy is not strong enough, so the Dow must crash.

BUT, I do KNOW better. The fact of the matter is that the Dow is going to reach 31,000 over the next two years … 

NOT IN SPITE of political dysfunction in Washington …

NOT IN SPITE of the mess in Europe and Japan …

NOT IN SPITE of ongoing currency and trade wars …

NOT IN SPITE of gargantuan federal debts …

But BECAUSE OF THEM.

I know better because for nearly 40 years, I’ve traveled the world and studied every major market and economic system on the planet. I have charted how they interact and influence each other. How major economic cycles expand and contract and sometimes converge.

And the fact of the matter is this: If you understand the way capital flows like a powerful undercurrent through the world — and if you understand the significance of what happens when interest rates start rising …

Which they are already starting to do despite the Fed’s decision last week — then I promise, you will be well-positioned to make a fortune over the next few years as most U.S. stocks catapult higher. 

Here is what you need to know to take advantage of it:

First, rising interest rates will be one of the major reasons the Dow and other broad market indices explode higher. To the contrary of many of the best minds on — and off — Wall Street, when the Fed raises its official interest rate, that’s no reason at all to be worried about the stock market, and in fact, the opposite is true: Rising interest rates will fuel stocks much, much higher. 

How so? There are three chief reasons.

1. Rising interest rates are a sign that there is rising demand for money and credit. That’s a positive. 

2. Rising interest rates are also a sign that bond values are going to be heading down, and quite dramatically. As investors leave the bond market, they will have to put their money to work in other asset classes. 

Commodities will eventually be a recipient of that capital flow out of bonds. 

But the biggest asset class that will experience massive capital inflows from plunging bond prices will be none other than the stock market. It’s the only market that can handle the depth and liquidity of trillions of dollars of capital that needs to be invested. 

And it won’t just be capital flowing out of U.S. sovereign bonds. There will be trillions more flowing out of European sovereign debt when the next shoe drops in Europe, and that isn’t too far off.

3. Unlike when interest rates rise solely due to a healthy growing economy, this time around rates will rise because of a crisis in confidence in government. 

Sounds bad, right? After all, if governments are collapsing and rates are rising as a result, stocks must crash too, right? 

Wrong. Dead wrong. Which brings me to my next major reason why the Dow will explode to 31,000 over the next two years …

Second, collapsing governments in Europe, Japan and the United States will be just about the best thing that could happen for the U.S. stock market. 

I know what you’re thinking: That’s a pretty bold, almost unbelievable statement. Larry has definitely lost his marbles. 

But mark my words: As Western governments and their largely socialist, huge entitlement programs shrink and even go bust, the private sector will become the recipient of of cash otherwise eaten up by the public sector, and that will send stocks into an explosive move higher.

There’s more. As Western governments teeter and the banking system crashes again — and it will — stocks will be deemed to be a safer place to put your money than just about anything else. 

After all, just look at the Cyprus confiscation of bank depositor money in 2013. Banks will not be bailed out in the next crisis, and depositors everywhere will be bailed in.

Why keep your money in a bank then, when there’s no safety to be found and instead, large amounts of your capital will be deemed to be bank creditor funds?!

Want proof of all the above? Just look at the
1932-1937 time period and what most analysts are
NOT telling you about the Great Depression!

Back then, U.S. and European economies were plummeting in a depression. Unemployment continued to soar. And interest rates began to climb for the very same reasons I just cited: because 17 nations in Europe were going bankrupt, defaulting on their sovereign bonds.

And though the U.S. was the world’s creditor then, its bond markets also came under suspicion. Banks were folding left and right in Europe and the U.S. 

Tens of billions of dollars fled the sovereign bond markets — and the banking system — and went directly into U.S. stock markets. 

Despite the worsening global economy, the Dow Jones Industrials soared three hundred and eighty-two percent from a low of 40.56 in July 1932 to a high of 195.59 in March 1937. 

All in the middle of the worst depression in our nation’s history!

And all of my indictors and studies tell me that the Dow’s 2009 crash low of 6,495 is tantamount to the 1929 crash low in the Dow. 

And a similar 382 percent gain from that low would put the Dow Industrials just north of 31,000!

Thing is, Dow 31,000 is my minimum target. Why? 

Because unlike the 1932-1937 period when it was primarily European governments and banking systems that were going down the drain …

This time around the governments and banking systems of the U.S. and Japan will also collapse, adding fuel to the fire as capital stampedes away from the public sector and banks in droves … and into the welcoming arms of commodities and stocks.

What about the correction we’re now seeing in the stock market, and where do the commodity markets stand right now as well?

The pullback you’re seeing in the Dow is just getting started. It was way overdue and it will end up merely being a healthy correction — the one I have been looking for. 

The maximum downside in the Dow, according to my models, is roughly 13,900. 
If it gets that low, be ready to back up the truck.

Commodities are now in the final phase of their correction. We should see final bottoms come into play in the next few months. 

Best wishes, and stay tuned,

Larry