3 ETFs That Tanked This Week

| April 26, 2013 | 0 Comments

declining chartRight now we’re in the thick of the first quarter earnings season.

It’s the time of year for companies to deliver the revenue and earnings investors are expecting… or be ready to deal with the fallout.

Here are three ETFs that have taken heavy losses this week.

VelocityShares Long VIX Short Term ETN (VIIX)

VIIX was one of the worst performing ETPs this week.  It’s down a whopping 12%…

This ETN seeks to replicate the return of the daily performance of the S&P 500 VIX Short-Term Futures index.

As you may know, the VIX reflects the implied volatility of the S&P 500 index.  The calculation of the VIX is based on prices of put and call options on the S&P 500 index.  The ETNs are linked to the daily return of the index and do not represent an investment in the VIX.

So what happened to VIIX?

Simply put, investors’ expectations of market volatility dropped like a rock this week.

Last week, market volatility was high.  Investors were worried that stocks could pull back in the face of weaker than expected economic data and weak earnings.  So they bought puts to protect from or even profit from a potential pullback.

The increase in put buying sent the VIX soaring near the highest level of the year.  But the pullback never materialized and the VIX has fallen from around 18 last week to 14 today.  But it’s still too early to call a bottom in the VIX or VIIX.  So I’d continue to steer clear of this underperforming ETF.

ProShares Short Basic Materials (SBM)

SBM dropped more than 8% this week to near the all-time lows.  That’s a big blow for anyone who owns this ETF…

SBM is an inverse ETF.  That means the daily performance of the ETF is opposite of the index it tracks.

In this case, SBM tracks the Dow Jones U.S. Basic Materials Index.  The companies in the index are involved in the production of aluminum, steel, non-ferrous metals, commodity chemicals, specialty chemicals, forest products, paper products, as well as the mining of precious metals and coal. 

This ETF is struggling because basic materials stocks have soared this week.

The good run for the materials this week came out of nowhere.  Defensive sectors like healthcare, consumer staples, and utilities have been the best performers this year while cyclical sectors like materials have been lagging behind.

This could be a turning point for the materials and other cyclical sectors.  We could be at the beginning of a period where institutional investors rotate money out of defensive and into cyclical sectors.  If that’s the case, SBM is likely headed even lower from here.

United States Natural Gas (UNG)

UNG is having a rough week after reaching a new 52-week high of $24.09 last week.  The ETF is now 7% lower than it was last week.  But it’s not all bad news for UNG.  It’s still up nearly 50% this year.

UNG seeks to replicate the performance of natural gas prices.  It invests in futures contracts on natural gas traded on the NYMEX that is the near month contract to expire.

This ETF has been on a roll this year… What triggered the recent selloff? 

It’s no secret why natural gas prices have been on the upswing.  The amount of natural gas in storage is 32% below last year’s levels and there are fewer rigs pumping natural gas.

But the recent rally has sent UNG up to the 2012 highs.  This level has been stiff resistance for natural gas prices.  It seems like there is idol production that is just waiting in the wings to be unleashed when prices reach these levels.

I’m not surprised to see this technical resistant level send natural gas prices lower.  And if we see an uptick in supplies, we could very well see UNG give up a good chunk of the gains it has made this year.

Good Investing,

Corey Williams

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Category: Commodity ETFs, ETFs, Inverse ETFs, What's Going On?

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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