TIME FOR SRS?

SRS is an Ultrashort ETF on real estate, I've watched this ETF for quite some time and have been very interested in a position for SRS, but even in the midst of a double dip housing recession, it's really not done much of anything.

 This bullish descending wedge has broke and travelled laterally, which is the new norm for these patterns. It looks like SRS has been building a base during this time. If SRS takes off to the upside, then the pattern implied target is a lofty double. What could take housing lower or at least housing equities? A few things can, 1) the banks (big banks) have survived purely as a result of their trading desks, and many of the large banks are also primary dealers so the Fed must buy treasuries from them to moetize them as they can't buy directly from the treasury. If the QE/POMO process is not renewed and there's little evidence now of that coming, then a major source of risk free income disappears. They took the money from the flipped bonds which was essentially billions of risk free dollars from the fed and just invested in risk assets and did well, the market is looking different now though and it seems that is being discounted right now when you look at say, JPM, MS or GS.

2) If they lose the free Fed money for flipping bonds, then what are they left with? A lot of toxic debt and lawsuits for years to come and another round of foreclosures that may be pretty intense. I had a brief discussion this morning with a corporate CPA and he made mention of some advantage of foreclosing on your home before 2012, apparently there's some tax advantage now when the banks file a 1099c which will end in 2012, at that point whatever the 1099c comes in at, will be taxed as income. I didn't have long to talk about it and it's the first I've heard of it, but the gist is, if you are upside down on your home and want out, do it now before 2012, so he's expecting a lot more foreclosures this year.

3) 14 major banks were just hit with a self-imposed audit that they must carry out, any funny business that took place when they foreclosed on homes will be penalized and they'll have to pay some sort of restitution to homeowners.

4) Apparently the Fed (and I haven't read up on this) is now instituting changes that are supposed to cut down on mortgage/foreclosure fraud, but the end result according to the opinion piece is that it will kill the housing market.

5)There's the very real chance that inflation will cause the Fed to raise rates, many Fed governors and regional presidents have already said as much, this too will kill the housing market.

6, 7, 8, 9 and 10- There are many other reasons, it's not really important that I cover all the fundamentals, what is important is the general theme and the charts, so lets take a look at SRS.

 The daily chart of SRS and MoneyStream showing a positive divergence into the second bottom in the lateral base area, also my STOCH/RSI indy showing a buy signal here of some importance.

 The accumulation here is the first bottom, the distribution isn't heavy, just enough to take SRS back down to cheap levels in which accumulation can take place again. Please do note the red box on price as this is the very often seen "false upside breakout" before a move down, it comes complete with its own little negative divergence showing distribution into the breakout-I mention it just as part of the learning process of the market and what you can expect on a fairly regular basis.

 The 5 min chart had some accumulation on Friday, so it seems something was being discounted or perhaps a leak.

Today we have a negative 1 min divergence so SRS may pullback a bit. I do prefer a solid breakout here before committing to a full position, leveraged ETFs in a choppy market can be dangerous.

So this is an ETF that we want to keep an eye on, it has good profit potential and the fundamentals seem to be lining up to create the perfect storm.