Posted Sunday, February 8, 2009 @ 3:59 pm by Dr. Wish

The new 3x ETF’s–triple your pleasure — or pain

GMI

2/6

GMI-R

5/10

What is the GMI?
 

WORDEN T2108

58%

As you know, when I try to trade the trend of the QQQQ, I buy QLD (ultra long) or QID (ultra short) ETF’s.  These ultra  ETF’s are designed to move twice as much as the underlying index they track.  Well, less well known is that there now exist 3x ETF’s, designed to move three times as much as the underlying index. I knew about the recent emergence of these Direxion ETF’s, but was surprised to see how quickly they have caught on.  I have now located 16 of them, and 8 of them traded more than one million  shares each on the NYSE on Friday.  Here are the ones I have found.  Bull ETF’s: FAS, BGU, TNA, ERX, EDC, MWJ, TYH, and DZK.  Bear ETF’s: FAZ, BGZ, TZA, ERY, EDZ, MWN, TYP, DPK .  One can even trade options on most of these!  Remember, the leverage works both ways, they aim to go up or down at 3x the speed of the relevant index.  Still, if I have a good idea of the trend, these ETF’s may prove better than going to the casino and putting everything on black or red………..

Meanwhile, the GMI is now at 2 and the more sensitive GMI-R is is at 5.  gmi02062The QQQQ completed the third day  (U-3) of its short term up-trend.  And 74% of the Nasdaq 100 stocks had their MACD close above its signal line, a sign of an emerging up-trend. The QQQQ closed above its 10 week average,  a critical requirement for me to make profitable trades on tech stocks in the past.  So, I am still slowly building a position in QLD , and will wait to see if this rally holds.  One must not fight the trend, but I can wait to jump on gradually.  Among the stocks I am watching are:  NFLX, HMSY, AVAV, TSYS, and ASEI (I hold small positions in some of these).  All of my positions have sell stop orders in so that any losses will be kept small.  By the way, my great stock picking friend, Judy, is bottom fishing again, and purchased AMZN– before its recent break-out!


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Comments ( 11 )

These ultra ETF’s are NOT designed to move twice as much as the underlying index they track. Please read the prospectus, and consider the effects of slippage and compounding.

Total put/call ratio is at 0.71 – be careful.

Maple added these pithy words on Sun, 2-8-09 at 7:19 pm

Compare FAS and FAZ. They are not inverses of each other. You would have lost your ass either way. These are only good for very short term trades.

dave added these pithy words on Sun, 2-8-09 at 7:29 pm

Glad to see the two knowledgeable skeptics above who looked beyond the superficial conventional wisdom. Eric, how do you explain DUG vs USO ??

dave, ex-Terp added these pithy words on Sun, 2-8-09 at 8:44 pm

Thank you for your wonderful blog, Dr. Wish. I am hoping you can expand on any “formula” you have built for slowly building a position in QLD in the current market (GMI / GMI-R at 2 / 5, vs. 1 / 4 the previous two days); or similarly, building a position in QID in a down market. Thanks again.

Tracy added these pithy words on Sun, 2-8-09 at 10:56 pm

I’ll explain USO vs DUG. USO tracks the price of crude oil at the Cushing, Ok distribution hub. DUG tracks the Dow Oil and Gas index so it is comprised of stocks of oil and gas companies. If someone wished to track 2X the USO, DTO would be a much better choice as DUG does not have to move with the price of crude oil.

Jim tamarelli added these pithy words on Mon, 2-9-09 at 6:58 am

Jim,

Thanks, but that still doesn’t explain why DUG, an UltraShort ETF, has dropped from 86.50 to the low 20′s when most of the Dow Oil and Gas index is far off of its highs.

dave, ex-Terp added these pithy words on Tue, 2-10-09 at 10:39 am

Big Day today, I was bearish and was long SDS (2x inverse sp500), since friday @72.66, sold today at 79.3. im afraid of the volitility the next few days. Beaware, it wont be pretty =X

Albert added these pithy words on Tue, 2-10-09 at 1:39 pm

You bought it because EPS and fundamentals are good… it went down. No problem. Hold it long enough and it will go back up again. Patience makes money.

Joseph added these pithy words on Tue, 2-10-09 at 9:25 pm

Any opinions on inverse or leveraged inverse funds when marketing is in down trend

Rob Melbye added these pithy words on Sat, 5-22-10 at 3:22 pm

Any opinions on inverse or leveraged inverse funds when market is in down trend

Rob Melbye added these pithy words on Sat, 5-22-10 at 3:22 pm

One can use the 3X ETF’s for quick trades. I find them useful as a trading tool. I use 60Min chart and use and ema cross system. Generally 13/34 or 9/39 or 10/20/50 depending on the sector. I also use Standard deviation of the higher EMA’s to catch the extreme point. I put no more than 25% of my capital in one single trade and that capital is split in to 2 to 4 slices. I always try to cut the losers quickly generally 5 to 7%. I always exit half position after 10% gain and ride the rest with 5 to 7% stop loss.

Nilesh added these pithy words on Tue, 6-29-10 at 10:03 pm

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