Would have been shorting all the levered fund, especially the 3-x Direxion. Duh! Probably too late now. But If you shorted or, better yet, bought deep out of money April puts for April on FAS and FAZ and held on to them till today, you would have done so much better than the market.
Since Jan 1st of this year, FAS went from 25 to 9.5 today;
And FAZ went from 38 to under 10 today.
As promised in my previous post, here is my useless take on the market…
Every time I score a victory, the market never failed to come right back and humble me. Past is past. I am trying to be Borg-like and adapt to the phaser blasts I take from Mr. Market.
I looked the NYSE stocks trading over the upper Bollinger Bands at the close of trading today. Of the top 51 stocks on NYSE with trading volume 1 million or higher, 21 of them are Financial stocks. At the top of the list are Citi, GE and Goldman. Even XLF closed above its upper BB for the second day in a row.
S&P 500 touched the upper BB today.
With regard to three major indices, I would cautiously call it a double top with the exception of the following divergence from S&P.
- Dow reached a high of 8129 on April 2 and 8150 today and could not hold it. (Bad for DOW bulls).
- Today NASDAQ closed above (1653) its April 2 high of 1623. One close above April 2 high.
- On a closing basis, S&P bettered its April 2nd high of 842 for two days in a row. (Good for S&P bulls). [Divergence from DOW and NASDAQ]
Conclusion. This market may have temporarily peaked on April 2. What we have seen since April is distribution. Nevertheless, this is no consolation if you got stuck in levered funds.
Here is the list of stocks that closed above their upper BB today.
| Symbol | Name | Open | High | Low | Close | Volume | Daily Upper BB(20,2.0,Daily Close) |
| C | Citigroup, Inc. | 3.16 | 3.8 | 3.12 | 3.8 | 8.22E+08 | 3.429 |
| GE | General Electric Co. | 11.44 | 12.42 | 11.25 | 12.13 | 1.9E+08 | 11.708 |
| GS | Goldman Sachs Group, Inc. | 122.81 | 131.27 | 122.5 | 130.15 | 35685817 | 128.165 |
| PLD | Prologis Trust | 7.65 | 8.73 | 7.42 | 8.56 | 27505273 | 8.486 |
| STI | Suntrust Banks, Inc. | 13.57 | 17.13 | 13.27 | 16.06 | 26474819 | 15.25 |
| RF | Regions Financial Corp. | 4.22 | 5.13 | 4.09 | 5.03 | 24695154 | 4.992 |
| BK | Bank of New York Mellon Corp | 28.95 | 32.76 | 28.6 | 32.43 | 21744587 | 31.613 |
| FCX | Freeport McMoran Copper&Gold | 45.02 | 46.02 | 43.36 | 45.59 | 17930956 | 45.166 |
| ABK | Ambac Financial Group, Inc. | 0.961 | 1.15 | 0.94 | 1.14 | 15846960 | 1.04 |
| MET | Metlife, Inc. | 26.3 | 29.34 | 26.01 | 28.79 | 11946416 | 28.26 |
| AKS | AKSteel Holding Corp. | 10.1 | 10.97 | 9.68 | 10.8 | 11478239 | 10.242 |
| V | Visa Inc. | 58.16 | 61.4 | 58 | 61.11 | 9528241 | 60.794 |
| WLP | Wellpoint Health Networks Inc. | 43.12 | 44 | 41.96 | 43.58 | 8529078 | 41.778 |
| RCL | Royal Caribbean Cruises | 10.08 | 11.49 | 9.66 | 11.23 | 7181609 | 10.733 |
| NYB | New York Community Bancorp | 11.13 | 12.44 | 11.13 | 12.28 | 5990181 | 12.224 |
| CCL | Carnival Corp. | 25.29 | 26.51 | 24.83 | 26.2 | 5287200 | 26.184 |
| CSE | CapitalSource Inc. | 2 | 2.17 | 1.85 | 2.15 | 5141960 | 2.122 |
| JNS | Janus Capital Group Inc. | 8 | 8.79 | 7.65 | 8.63 | 4883271 | 8.508 |
| CTX | Centex Corp. | 9.41 | 9.78 | 9.26 | 9.74 | 4680119 | 9.731 |
| BPO | Brookfield Properties Corp. | 6.46 | 6.95 | 6.32 | 6.84 | 4578043 | 6.813 |
| AUO | AU Optronics Corp. | 9.69 | 9.97 | 9.66 | 9.87 | 4357270 | 9.684 |
| PXD | Pioneer Natural Resources Co. | 18.44 | 20.44 | 18.24 | 20.07 | 3866033 | 19.685 |
| DEI | Douglas Emmett Inc. | 9.06 | 10.12 | 8.93 | 9.85 | 3738669 | 9.487 |
| PCX | Patriot Coal Corp. | 4.43 | 4.99 | 4.32 | 4.92 | 3069231 | 4.909 |
| MPG | Maguire Properties Inc. | 0.999 | 1.73 | 0.999 | 1.25 | 2938347 | 1.109 |
| GNA | Gerdau AmeriSteel Corp. | 4.01 | 4.53 | 3.95 | 4.3 | 2795877 | 4.134 |
| LRY | Liberty Property Trust | 21.83 | 23.32 | 20.78 | 22.9 | 2641982 | 22.662 |
| RL | Polo Ralph Lauren Corp. | 48.24 | 51.75 | 47.75 | 51.51 | 2444427 | 50.474 |
| WDR | Waddell & Reed Financial Inc. | 20.63 | 21.98 | 20.38 | 21.79 | 2442843 | 21.746 |
| VMW | VMware Inc. | 29.54 | 31.72 | 29.33 | 31.53 | 2214025 | 31.067 |
| HMA | Health Management Associates | 2.82 | 3.15 | 2.77 | 3.07 | 2088630 | 3.056 |
| C/PM | Citigroup Inc. | 18 | 19.18 | 17.59 | 18.79 | 2044327 | 18.604 |
| GNK | Genco Shipping and Trading Ltd. | 14.25 | 15.66 | 13.54 | 15.33 | 1799401 | 15.034 |
| TD | Toronto Dominion Bank | 37.54 | 39.37 | 37.54 | 39 | 1757500 | 38.711 |
| ICE | IntercontinentalExchange Inc. | 88.74 | 91.43 | 86.88 | 91.17 | 1742831 | 90.877 |
| AOB | American Oriental Bioengineering Inc. | 4.19 | 4.4 | 4.14 | 4.31 | 1687046 | 4.306 |
| TC | Thompson Creek Metals Company Inc. | 4.58 | 4.96 | 4.5 | 4.85 | 1616041 | 4.755 |
| LQD | iShares iBoxx Investment Grade Corporate Bond Fund | 94.64 | 95.35 | 94.33 | 95.29 | 1581638 | 94.847 |
| VLY | Valley National Bancorp | 13.85 | 14.71 | 13.64 | 14.67 | 1507605 | 14.54 |
| C/PI | Citigroup Inc. | 32.05 | 34.51 | 31.94 | 33.87 | 1452769 | 33.309 |
| CYN | City National Corp. | 36.52 | 38.64 | 35.13 | 38.39 | 1408661 | 38.351 |
| DSX | Diana Shipping Inc. | 13.24 | 14.22 | 12.87 | 14.05 | 1401298 | 13.968 |
| SCI | Service Corp. | 3.79 | 4.05 | 3.72 | 4.05 | 1376026 | 3.955 |
| SLT | Sterlite Industries Ltd. | 8.36 | 8.72 | 8.33 | 8.58 | 1307230 | 8.452 |
| ETE | Energy Transfer Equity LP | 23.07 | 23.41 | 22.29 | 23.11 | 1278116 | 22.695 |
| NAL | NewAlliance Banchares | 12.35 | 12.81 | 11.58 | 12.71 | 1252719 | 12.682 |
| FBC | Flagstar Bancorp, Inc. | 0.97 | 1.2 | 0.92 | 1.12 | 1214631 | 1.047 |
| LFC | China Life Insurance Co. Ltd. | 54.99 | 56.29 | 54.67 | 55.82 | 1126902 | 55.513 |
| SWC | Stillwater Mining Co. | 4.34 | 4.85 | 4.32 | 4.77 | 1115432 | 4.647 |
| RRR | RSC Holdings Inc. | 6.8 | 6.8 | 5.67 | 6.07 | 1108901 | 5.817 |
| TTI | TETRA Technologies | 4.25 | 4.71 | 4.02 | 4.45 | 1082138 | 4.329 |
Here is what I am doing this week. I closed my April APOL puts for slight profit this evening. I believe that with both FAS and FAZ at the same price now, I am going to gamble on April calls for these two pigs. 2/3 on FAZ April 9 calls and 1/3 money on FAS April 9 calls. This is a synthetic straddle. By thursday, one of them will be trading above 11 bucks. If FAS goes to 11, I will breakeven. If FAZ trades above 11, I will make decent profit. It is very unlikely that both of them will trade below 9 by Thursday. This is damn risky, please don’t follow me with this crazy trade.
[got to go now ... typos to be corrected later..]
Inteesting strategy, but too crazy for me. But I really hope you make money on it, you have the vision & courage to do such a trade, I am pulling for you for doing so. Good luck!
The F’ers kissed this morning for the first time at $9.58. Average them at the end of the day, it equal $9.51. That is a decay of $.07 (about .08%/day). Shorting both is a no-brained and is the way to beat this bastard. It is not that sexy but equal about 200% return/yr.
Now here is the crazy part! Unless the F’ers decay at a fractional rate of their present value, then I calculate that there is only 119 days left for these two ETFs…with volitility it would be less.
Idan, I feel for your pain, ya put it out there and they don’t see it, once again. My bet is on GNK at this point, as it was during the trading day. Faz and Fas mean nothing if ya don’t see the bigger picture.
By the way, FAZ will be higher by the end of the week.
FWIW, Eric Oberg, former Goldman Sachs trader (if you want to be the best, you need to learn from the best) wrote another article on the levered funds today:
http://finance.yahoo.com/news/UltraShort-ETF-Losses-Go-to-tsmp-14870710.html
Relevant snippets:
“In previous pieces I have noted how these levered short ETFs are implicitly short a path-dependent volatility position. . . The volatility in the relative performance, however, should show people that this is an entirely inefficacious “hedge” or term position vs. other alternatives”
“To be fair, the marketing material for these levered short-side ETFs says explicitly that these ETFs are only meant to track daily index movements. But every time I see that, I have to wonder why a fund company would create a fund meant for a one-day hold — in theory everyone should go home flat every night, and the manager would have no assets under management. So it seems as though there is an implicit “greater fool theory” in place here — by definition, the company is reliant on someone holding these positions overnight and bearing the volatility risk.”
“I wrote earlier that there are only three reasons I could think of why someone would buy these: 1) they were uninformed, 2) they were trying to skirt the margin rules, or 3) they were trying to engage in market manipulation. I still stand by all three of these statements.”
So in summary, the take on the levered ETF’s by a former Goldman Sachs trader and then Managing Director, are that they are “ineffective term positions”, “requiring a greater fool to hold overnight” typically purchased by the “uniformed or manipulators”.
Elsewhere Mohan noted a comment on Jesse’s blog that GS earnings success was due to their trading prowess this quarter. Mr. Oberg, a former Goldman Sachs trader reveals rather insightful analysis on the levered ETFs (and has been doing so since they arrived last fall). How often can you pick the mind of a successful trader and get their unvarnished opinion on trading strategies? Good traders will read the article and cogitate on the conclusions, and hopefully adapt their trading strategies to synthesize this information. Bad traders (those buying, holding, and averaging down on the levered ETFs) will ignore the information and will blame their losses on “market manipulators” rather than taking accountability for their own trades.