13Mar11:27 amEST

ETFs: Buyer Beware in Times Like These

GDXJ is the ETF for the smaller cap (or "junior") gold miners, with some silver miners sprinkled in there for good measure. JNUG is a triple-long ETF derived from GDXJ designed to give market players leverage on a GDXJ trade. 

However, as you can see on the first and second charts of GDXJ and JNUG, respectively below on their daily timeframes, something is clearly amiss or afoot. 

With the GDXJ relief rally this morning after a few rough weeks, JNUG should be higher by at least 20%, but instead it is lower by more than 30%. 

So what gives?

Well, there are already many theories floating around social media this morning as to why we have this dislocation. But we what know for sure is that there have, indeed, been liquidity issues in the marketplace at-large over the last few weeks to the point where The Fed has ramped up activity, once again. 

Long-term readers and Members know I often say that ETFs are best viewed as near-term trading vehicles only, not buy-and-hold instruments, levered or not. Simply put, ETFs are inherently flawed in the manner in which they are constructed. I, myself, will occasionally trade an ETF but will be in and out of the trade, win or lose, rather quickly. 

However, in the current landscape traders should be extra vigilant, as the JNUG action today should be a lesson what happens when liquidity is an issue--These seemingly illogical, seemingly erroneous moves can become exacerbated. 

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