Once more unto the breach – QID, EEV and FXP again

Let’s have another crack at Jerry

I’ve rebought my favourite Proshares Ultrashort ETF’s:

1. Ultrashort QQQ (QID) – 2 x short the Nasdaq 100 index; the most fundamentally overvalued US stock index and home of all the hot speculative money. I bought QID on Friday at $85.63 (about £53.77).
2. Ultrashort MSCI Emerging Markets (EEV) – 2 x short the MSCI Emerging Markets Index; that’s where all the manufacturing is these days, and it’s going DOWN. I bought EEV on Friday at $182.53 (about £114.62).
3. Ultrashort FTSE/Xinhua China 25 (FXP) – 2 x short the FTSE/Xinhua China 25 Index; as EEV only more so. I bought FXP on Friday at $152.46 (about £95.73).

Do I regret being bounced out of these a few days ago? Absolutely – I’d be into big profits by now. And, there’s nothing I hate more than being whipsawed.

But, in current markets, and with these sorts of plays, I think that you have to be nimble, even though that risks reading the signals wrongly. With Ultrashort ETF’s, not only do you risk the negative gearing effect (i.e., losing money x2 when the underlying starts to go up), but we are also in an environment where governments are pulling every trick they can to shore up markets, and prevent the further falls that I am betting on. Thus, you can expect further bans on short selling, direct action to buy up shares (already mooted by France and Japan), and temporary stock market closures. Funny how no government ever does anything similar to restrain “irrational exuberance” when markets are rising precipitously.

Anyway, the one Ultrashort that I did hold onto, the Proshares Ultrashort Real Estate (SRS) is doing very nicely, thank you – currently up some 35%. As the underlying index (measured via its proxy long ETF, the iShares Dow Jones Real Estate, symbol IYR) now has a 14 day RSI of 28.11, it is technically over-sold, so I will be placing a stop-loss on SRS just below Friday’s low, at $163.43. That way, I can continue to participate in any further falls, while securing my profits at the first hint of a reversal.