I hope you like where we are heading.

Direxion Daily Small Cap Bear 3X Shares (the Fund), formerly Direxion Small Cap Bear 3X Shares, seeks daily investment results of 300% of the inverse (or opposite) of the price performance of the Russell 2000 Index (the Small Cap Index). The Small Cap Index measures the performance of the small-cap segment of the United States equity universe and consists of the smallest 2,000 companies in the Russell 3000 Index, representing approximately 10% of the total market capitalization of the Russell 3000 Index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Fund does not invest in equity securities. The Fund creates short positions by investing at least 80% of its net assets in financial instruments that, in combination, provide leveraged and unleveraged exposure to the Small Cap Index, and the remainder in money market instruments.

So, it basically (after fees) runs at 3x the inverse of the Russell 2000 small caps index. If the R2000 is up 1%, TZA is down 3%, and vice versa. It’s the vice versa part I like the most.

I’m excited about this particular stock because to me the asset price run-up has been way ahead of reality since it began in March 2009. Many companies in the US have reported lower costs, and no increase in revenue. There are exceptions of course, Apple for one, but the trend has been to concentrate on lowering costs. This is a tricky cycle and we are now entering it as the Northern Hemisphere winter begins to take hold. If companies are cutting costs, they are not utilising services of other companies, businesses or individuals and this means there are many, many people out there that are not earning what they may have been, and therefore spending less, making it harder to raise the revenue of the companies cutting costs. Geddit?

It’s a cycle that will take some time to play out. There’s also a ‘spooky graph’ floating around that tracks 1929 – 34 v 2008 to today, and we are almost tracking it exactly week by week…….. but history never really repeats itself, does it? Er……..

This is really a short term play, and not a buy and hold five year deal. TZA is tracking around it’s lows, and I make no assertion it will get back to it’s high of over USD150, but you never really know.

As the bloke who put me onto TZA said, “keep the stops tight, particularly at the loss end”

There are plenty of these funds around, a quick search will find scores of them, but this one I like because in a declining market, the small cap indicies are likely to drop faster.

You can read more here.

What does this mean? If it get’s close to .4600, or higher, I’m a short seller. It’s my view that this rate will be considerably lower by June 2010. FX is notoriously difficult to predict (USD anyone?) but there is a sense to this that can’t be ignored.

The Kiwi is pretty much overvalued against everything right now, with the possible exception of the Zimbabwe dollar, and in the short term it’s quite possible it will break new territory. But the fundamentals don’t stack up. It’s not that NZ is poor, or low value, it’s just a case of overexcitement by speculators. Long term, it can’t last. Pure and simple.