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Massive Selling Triggers Massive Decline


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#16 quanta

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Posted 24 August 2009 - 07:12 PM

Noticed some posts on IDS today about Leveraged ETFs

Here is how to trade them:

A prime example of the evils of leveraged ETFs is the cumulative performance of the ProShares SKF fund, which tracks double the inverse returns of the Dow Jones U.S. Financials Index. Through July 2nd, the cumulative performance of the SKF since its inception in February 2007 is -33%, despite the underlying index, tracked by the IYF, being down by -63%. This sort of example has lead many to scream that leveraged ETFs "don't work." While these results aren't intuitive, this is more-or-less a caveat emptor situation, and there is a rebalancing strategy that will keep the cumulative performance of the SKF near -2x that of the IYF.

First, the divergence is not principally caused by the daily returns of the SKF straying from -2x those of the IYF. Error in daily return replication is not the main issue. The answer is more basic. If you start with $100, make 10% and then lose 10%, you are left with $99. If you make 20% and then lose 19% you are left with than $97.20 even though the sum of your returns was positive. The more volatile the returns are, the more likely it is that you will have a situation where the sum of daily returns is positive but your cumulative return is negative. Higher leverage multipliers will also aggravate this effect. Fortunately, this "volatility premium" problem is avoided by periodically rebalancing the position.


weekly_rebalance.JPG

Also as an inverse explanation is a CME pdf on how to manage this crap on a daily basis...
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#17 cwd

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Posted 24 August 2009 - 07:13 PM

I still say we are topping,gonna take some time though.

I have a few guesses for the next 6 months:




1.SPX to 800 or less

2.Bond yields hit NEW LOWS.

3.Oil to 25 or less

4.Muni's RALLY another 20%+ from here


My only position is Muni's....Lots of em.



Who is going to buy all those T-bonds beside Ben?

#18 shorty

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Posted 24 August 2009 - 07:16 PM

My only position is Muni's....Lots of em.

hopefully not CA cities

I think they're all gonna default

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#19 Jorma

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Posted 24 August 2009 - 08:03 PM

gappin' down almost another full pernt in the night session :ninja:

gov't needs to step in here quickly to prevent blood in the streets

they'll probably force cramdowns on the margin man

underwater stockowners will git their loan principal reduced, tax-free, down to the current markit value of their common

it's the right thing to do, they're innocent victims

this way everybody wins


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#20 kiwibear

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Posted 24 August 2009 - 08:19 PM

hopefully not CA cities

I think they're all gonna default




Me too.

First a drop.
Then a trickle.
Stream.
Flood.

All good though. Uncle Sam will make good on the debts. He has unlimited wealth you know.

Some of the current stimulus money had better be going on research and development of super high diameter/pressure hoses so they can deliver the volumes of cash needed in short order.

#21 Rationalize

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Posted 24 August 2009 - 08:41 PM

"There is the plain fool, who does all the wrong things everywhere, but there is the Wall Street fool, who thinks that he must trade all the time. No man can can always have adequate reasons for buying and selling stocks daily -- or sufficient knowledge to make his play a successful play."

From Edwin Lefevre, Reminiscences of a Stock Operator

Yeah, well, I try not to take advice from ppl like Mr Lefevre, who shot himself to death after massive multi-year mojo destroying losses. :ninja:

Edit: Also .. tell that to the program trading pootas.
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#22 Rationalize

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Posted 24 August 2009 - 08:59 PM

Noticed some posts on IDS today about Leveraged ETFs
...
A prime example of the evils of leveraged ETFs is the cumulative performance of the ProShares SKF fund, which tracks double the inverse returns of the Dow Jones U.S. Financials Index. Through July 2nd, the cumulative performance of the SKF since its inception in February 2007 is -33%, despite the underlying index, tracked by the IYF, being down by -63%. This sort of example has lead many to scream that leveraged ETFs "don't work." While these results aren't intuitive, this is more-or-less a caveat emptor situation, and there is a rebalancing strategy that will keep the cumulative performance of the SKF near -2x that of the IYF.

First, the divergence is not principally caused by the daily returns of the SKF straying from -2x those of the IYF. Error in daily return replication is not the main issue. The answer is more basic. If you start with $100, make 10% and then lose 10%, you are left with $99. If you make 20% and then lose 19% you are left with than $97.20 even though the sum of your returns was positive. The more volatile the returns are, the more likely it is that you will have a situation where the sum of daily returns is positive but your cumulative return is negative. Higher leverage multipliers will also aggravate this effect. Fortunately, this "volatility premium" problem is avoided by periodically rebalancing the position.

...

True for levered stock ETFs [and for dudes trading on margin].

Not so true for Commod ETFs rolling futures. [Interest and storage costs].
PARTY! NORTH KOREA! SATURDAY NIGHT! BYOF (bring your own food)

#23 Charmin

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Posted 24 August 2009 - 09:37 PM

NEW YORK (CNNMoney.com) -- Shares of bailed-out mortgage finance giants Fannie Mae and Freddie Mac soared Monday, as investors try to piggyback on a rally in shares of government-backed financial companies.

Fannie (FNM, Fortune 500) shares rose nearly 50% in afternoon trading, while Freddie (FRE, Fortune 500) jumped almost 30%.

The mortgage giants' Monday rally was sparked in large part by a jump in the shares of companies like AIG (AIG, Fortune 500) and Citigroup (C, Fortune 500), said Paul Miller, anal cyst at FBR Capital Markets and Co.


hope=words


Ben is buying debt

Andy Gause audio segment

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#24 TenaciousG

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Posted 24 August 2009 - 09:40 PM

Okay, something is up for Obama to reappoint Benny and the Jets early. Certainly provides a catalyst to move the market higher. Feels very much like 9/15/2008....

Obama to Reappoint Ben Bernanke
Cynically optimistic

#25 Speakeasy

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Posted 24 August 2009 - 09:48 PM

gappin' down almost another full pernt in the night session :ninja:

gov't needs to step in here quickly to prevent blood in the streets

they'll probably force cramdowns on the margin man

underwater stockowners will git their loan principal reduced, tax-free, down to the current markit value of their common

it's the right thing to do, they're innocent victims

this way everybody wins


Oh Joy! They've heard our screams. We are SAVED!
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#26 Jimi

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Posted 24 August 2009 - 09:57 PM

Okay, something is up for Obama to reappoint Benny and the Jets early. Certainly provides a catalyst to move the market higher. Feels very much like 9/15/2008....

Obama to Reappoint Ben Bernanke

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#27 DrStool

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Posted 24 August 2009 - 10:31 PM

Market Update 8/24/09- Professional Edition


by Lee Adler, Monday, August 24, 2009, in Professional Edition, Today's Markets | Permalink |Comments (0) Edit Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

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#28 shorty

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Posted 24 August 2009 - 10:36 PM

Me too.

First a drop.
Then a trickle.
Stream.
Flood.

All good though. Uncle Sam will make good on the debts. He has unlimited wealth you know.

Some of the current stimulus money had better be going on research and development of super high diameter/pressure hoses so they can deliver the volumes of cash needed in short order.

wealth money

funny money, that is

FRN's

soon to be obsolete and devoid of all worth

"when the Fed falls down, boom boom, when the Fed falls down........."

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#29 shorty

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Posted 24 August 2009 - 10:47 PM

aSS can be seen below, aSS of turday I've changed my perpruratory indicator setting from utk to dtc
according my system now time sell everything at markit git out and git short
this simple yet powerful mechanistic system backtests 105% accuracte

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#30 Lesser Fool

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Posted 25 August 2009 - 12:54 AM

Yeah, well, I try not to take advice from ppl like Mr Lefevre, who shot himself to death after massive multi-year mojo destroying losses. :ninja:

Edit: Also .. tell that to the program trading pootas.


I think you are confusing Mr. Lefevre, who lived into his seventies, with the subject of his most famous book, the fictionalized account of Jesse Livermore.





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