Bringing Some High Energy into the New Year

Transcription

1 Bringing Some High Energy into the New Year NYMEX crude oil futures experienced a significant price increase in 2011, albeit with high volatility, like many asset classes in the period. NYMEX crude oil futures increased 7.95% in 2011 with a standard deviation of 8.49%. Technical analysis can delve beyond the simple risk and return figures to understand the trends in each commodity. NYMEX Crude Oil Futures Technical Analysis Chart Source: BigCharts between July 9, 2011 and January 9, 2012.

2 One of the general assumptions by technical analysts is that the trend will persist until it gives definite signals that it has reversed. The upward trend of NYMEX crude oil futures, established in October, is showing signs of continuation. The moving average convergence divergence (MACD), which measures momentum by taking the difference between the 12day and 26day moving averages, has crossed over the signal line. This is seen as a bullish signal however, the MACD can be viewed as a bearish signal if it crosses below the signal line. The relative strength index (RSI) compares the relative strength of price gains on days that a security closes up with the strength of price losses on days that the security closes down. The standard ranges are above 70 and below 30 as indications of overbought and oversold levels. When a market remains above or below 50 for extended periods of time, it is considered to be trending by technical analysts. However, NYMEX crude oil futures have recently crossed below 50. This can generally be viewed as a bearish signal that the upward trend may be reversing. Another general assumption of technical analysis is that volume confirms the trend. The NYMEX crude oil futures chart shows that volume in the later half of December 2011 has been increasing while continuing the upward price trend. This can generally be considered a bullish signal to the current trend.

3 Similar technical analysis can be applied to NYMEX natural gas futures. NYMEX natural gas futures Technical Analysis Chart Source: BigCharts between July 9, 2011 and January 9, NYMEX natural gas futures have been trending downward over the past six months between July 9, 2011 and January 9, This would generally be considered a bearish signal according to the assumption that the trend will persist. However, the MACD is crossing over the signal line which could be generally viewed as a bullish signal.

4 The RSI has been oscillating approximately between the range and trending upward, which could generally be considered a bullish signal. Volume was decreasing during the early part of December However, volume started increasing later in the month and into January 2012 which could generally be considered a bullish signal for the other bullish events because it is a confirming indicator. If you believe NYMEX crude oil futures will increase according to technical indicators: HUC (1x): 100% exposure to NYMEX crude oil futures HOU (2x): 200% leveraged exposure to NYMEX crude oil futures If you believe NYMEX crude oil futures will decrease according to technical indicators: HIO (1x): 100% inverse exposure to NYMEX crude oil futures HOD (2x): 200% leveraged inverse exposure to NYMEX crude oil futures If you believe NYMEX natural gas futures will increase according to technical indicators: HUN (1x): 100% exposure to NYMEX natural gas futures HNU (2x): 200% leveraged exposure to NYMEX natural gas futures If you believe NYMEX natural gas futures will decrease according to technical indicators: HIN (1x): 100% inverse exposure to NYMEX natural gas futures HND (2x): 200% leveraged inverse exposure to NYMEX natural gas futures If you believe NYMEX crude oil futures will outperform NYMEX natural gas futures: HON (1x): 100% exposure to NYMEX crude oil futures AND 100% inverse exposure to NYMEX natural gas futures If you believe NYMEX natural gas futures will outperform NYMEX crude oil futures: HNO (1x): 100% exposure to NYMEX natural gas futures AND 100% inverse exposure to NYMEX crude oil futures

5 The views expressed herein are of a general nature and this Trade Idea is not and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment, please consult your investment advisor or advisors. ETF Performance as of December 31, This ETF does not seek to meet its investment objective over any period other than daily. ETF 1 mo 3 mo 6 mo YTD (2011) 1 yr 3 yr Since Inception Inception Date Annual Management Fee HUC Jun % HUN Jun % HOU Jan % HOD Jan % HNU Jan % HND Jan % HON Apr % HNO Apr % HIN Feb % HIO Feb % Wade Guenther, CFA ETF Research Analyst Horizons Exchange Traded Funds HUC Investment Objective The Horizons WinterTerm NYMEX crude oil futures ETF ( HUC ) seeks investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to the performance of the NYMEX light sweet crude oil futures contract for the next December delivery month. HUC is denominated in Canadian dollars. Any U.S. dollar gains or losses as a result of the HUC s investment will be hedged back to the Canadian dollar to the best of HUC s ability. If HUC is successful in meeting its investment objective, its net asset value should gain approximately as much, on a percentage basis, as any increase in the NYMEX light sweet crude oil futures contract for the next December delivery month when the NYMEX light sweet crude oil futures contract for the next December delivery month rises on a given day. Conversely, HUC s net asset value should lose approximately as much, on a percentage basis, as the NYMEX light sweet crude oil futures contract for the next December delivery month when the NYMEX light

6 sweet crude oil futures contract for the next December delivery month declines on a given day. HUN Investment Objective The Horizons WinterTerm NYMEX natural gas futures ETF ( HUN ) seeks investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to the performance of the NYMEX natural gas futures futures contract for the next January delivery month. HUN is denominated in Canadian dollars. Any U.S. dollar gains or losses as a result of HUN s investment will be hedged back to the Canadian dollar to the best of the ETF's ability. If HUN is successful in meeting its investment objective, its net asset value should gain approximately as much, on a percentage basis, as any increase in the NYMEX natural gas futures futures contract for the next January delivery month when the HOU and HOD Investment Objectives The Horizons NYMEX crude oil futures Bull+ ETF ( HOU ) and the Horizons NYMEX crude oil futures Bear+ ETF ( HOD ) seek daily investment results equal to 200% the daily performance, or inverse daily performance, of the NYMEX light sweet crude oil futures contract for the next delivery month. HOU and HOD are denominated in Canadian dollars, as the US dollar exposure of the underlying index is hedged daily. HNU and HND Investment Objectives The Horizons NYMEX natural gas futures Bull+ ETF ( HNU ) and the Horizons NYMEX natural gas futures Bear+ ETF ( HND ) seek daily investment results equal to 200% the daily performance, or inverse daily performance, of the NYMEX natural gas futures futures contract for the next delivery month. HNU and HND are denominated in Canadian dollars, as the US dollar exposure of the underlying index is hedged daily. HON Investment Objective The Horizons NYMEX Long Crude Oil/Short Natural Gas ETF ( HON ) seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to the sum of one times (100%) of the daily performance of the NYMEX light sweet crude oil futures contract for the next delivery month and one times (100%) the inverse (opposite) of the daily performance of the NYMEX natural gas futures futures contract for the next delivery month. HNO Investment Objective The Horizons NYMEX Long Natural Gas/Short Crude Oil ETF ( HNO ) seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to the sum of one times (100%) of the daily performance of the NYMEX natural gas futures futures contract for the next delivery month and one times (100%) the inverse (opposite) of the daily performance of the NYMEX light sweet crude oil futures contract for the next delivery month.

7 HIN Investment Objective The Horizons NYMEX natural gas futures Inverse ETF ( HIN ) seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to one times (100%) the inverse (opposite) of the daily performance of the NYMEX natural gas futures futures contract for the next delivery month. Any U.S. dollar gains or losses as a result of HIN s investment will be hedged back to the Canadian dollar to the best of its ability. HIO Investment Objective The Horizons NYMEX crude oil futures Inverse ETF ( HIO ) seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to one times (100%) the inverse (opposite) of the daily performance of the NYMEX light sweet crude oil futures contract for the next delivery month. Any U.S. dollar gains or losses as a result of HIO s investment will be hedged back to the Canadian dollar to the best of its ability. The views expressed herein may not necessarily be the views of AlphaPro Management Inc., Horizons ETFs Management (Canada) Inc. or Horizons Exchange Traded Funds Inc. All comments, opinions and views expressed are of a general nature and this trade idea should not be considered as advice to purchase or to sell mentioned securities. Before making any investment, please consult your investment advisor or advisors. Commissions, trailing commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by AlphaPro Management Inc. and Horizons ETFs Management (Canada) Inc. (the Horizons Exchange Traded Products ). The Horizons Exchange Traded Products are not guaranteed, their values change frequently and past performance may not be repeated. Please read the prospectus before investing. The Horizons Exchange Traded Products consist of the Horizons Index ETFs ( Index ETFs ), Bull Plus and Bear Plus ETFs ( Plus ETFs ), Spread ETFs ( Spread ETFs ) and Inverse ETFs ( Inverse ETFs ). The Plus ETFs, Spread ETFs and certain other Horizons Exchange Traded Products use leveraged investment techniques that magnify gains and losses and result in greater volatility in value. These Horizons Exchange Traded Products are subject to leverage risk and may be subject to aggressive investment risk and price volatility risk, which, where applicable, are described in their respective prospectuses. Each Plus ETF seeks a return, before fees and expenses, that is either 200% or 200% of the performance of a specified underlying index, commodity or benchmark (the Target ) for a single day. Each Spread ETF seeks a return, before fees and expenses, that is the sum of 100% of the performance of one Target plus 100% of the performance of a second Target for a single day. Each Index ETF or Inverse ETF seeks a return that is 100% or 100%, respectively, of the performance of a Target. The indicated rates of return for the Horizons Exchange Traded Products in the performance tables are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends and distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Due to the compounding of daily

8 returns, a Plus ETF s, Spread ETF s or Inverse ETF s returns over periods other than one day will likely differ in amount and possibly direction from the performance of their respective Target(s) for the same period. Investors should monitor their holdings, as frequently as daily, to ensure that they remain consistent with their investment strategies. All trademarks/service marks are registered by their respective owners. None of the owners thereof or any of their affiliates sponsor, endorse, sell, promote or make any representation regarding the advisability of investing in the Horizons Exchange Traded Products. Complete trademark and servicemark information is available at