Two days ago in the “Grrrr…ressive” post, I suggest aggressive investors should pick up SMN, the inverse Basic Metals ETF, due to resistance that Copper/Silver were facing and that the metals could start “acting HEAVY!
(see post here)
CLICK ON CHART TO ENLARGE
It is very early in this trade and early this morning, yet I wanted to share that from a price/pattern perspective I like what I see so far, especially yesterday! Why?
Yesterday the Dollar fell over 1%, which the majority of the time results in a huge stock and commodity rally. One day a trend does not make, yet found it interesting that the Dollar fell 1% and the inverse metals ETF not only didn’t get creamed, it was up a fraction!
Game plan….For those that bought SMN…..Raise your trailing stop to 6%. For those that didn’t buy it, the action still looks very good so far!
Thank you for the useful post! I would not have gotten this otherwise!
Bob_in_MA,
For a leveraged ETF a 20% stop would actually be reasonable during the panic-striken flight-to-safety market conditions that prevailed at the time. When the market is plunging and volatility is extreme like it was, it probably makes sense to remove any stop losses until it is time to protect profits. If such conditions occur again in the next year or two, the decline may be much deeper than in Feb-Mar 2009 and counter-party risk may become a concern when trying to score on defense.
cK,
I think you inadvertently made my point there. If you had anything less than a 20% trailing stop loss, it was triggered on October 10th.
If you are trading to maximize profit with the minimal risk over more than a day or two, options are much more predictable.
Bobinma – that may be true if you did not have a trailing stop loss to lock in your 150+% gain when srs peaked around November 19 2008. Remember what Chris strategy is here. It is timing the entry point almost perfectly or the trade is exited with a small loss.
For some reason, Yahoo.s own link there doesn’t show the dates correctly, but you can set it yourself.
cK,
It’s not a tracking issue, it’s the nature of the beast.
Here’s a chart of IYR vs SRS between 9/22/08 and 2/23/09:
http://finance.yahoo.com/echarts?s=IYR+Interactive#chart12:symbol=iyr;range=20080922,20090223;compare=srs;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on
IYR ends down more than 50%, SRS is barely positive. If you had instead bought a JAN 2010 put with a 80 strike you would have paid about $20-25 in September and it would have been worth about $60 in February.
SRS works if you time your entry and exit perfectly, with the put you don’t have to be as precise.
And I trade options in all my IRAs.
Chris, isn’t SMN the Ultrashort Basic Materials ETF?
Leveraged ETFs are not perfect, but they are available to most types of accounts, including IRAs. SRS has certainly had some tracking issues – even on a daily basis. I am generally comfortable using double leveraged in situations like this where you are buying at the top or bottom and expect to hold them for a limited amount of time (say 1-6 months) and have an idea about how they will perform if the market acts as you think it will by studying its chart. Also I am somewhat more comfortable using them when shorting since selloffs tend to be abrupt/faster (shorter timeframe). Triple leveraged are certainly for day trading. I look at the double leveraged also as trading vehicles, but for longer time periods. Some issues with single leveraged are that they are thinly traded (low volume) with high bid-ask spreads. Just my opinion. I know Chris hates leveraged ETFs but still uses them.
Gary,
I buy puts. You can in-the-money puts with various degrees of effective leverage. I tend to try for about 8-10:1. To get the same same effect as a 2x inverse ETF, I only need to have 1/5 as much at risk.
The 2x and 3x ETFs have some sort of reversion over time. Someone had a post up where they showed if you shorted both a 3x ETF and the corresponding inverse 3x ETF, you would make money. I got burned by this with SRS even as the REITs declined. I thinkk the 2x and 3x funds aren’t much good beyond day trading.
Chris, I’m wary of using double-leveraged and inverse ETFs because of the volatility loss. What about shorting IYM instead?
Well I’ll be damned, is that volume I see below your chart?