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VIDEODirexion ETFs: Time for a New Strategy
By
Adam Warner
Apr 30, 2009 9:30 am
Looking at the charts for clues.
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When last we checked, I was of the opinion that it's gotten too crowded, and that the best course was to perhaps watch.
It's pretty clear the patterns have changed lately. Check out FAS from yesterday.
It was north all day, so we would expect the rebalancers to show up as buyers. But check out the 1 minute volume bars down below. The biggest spike was around 2:10-2:15 when Big Ben announced he would make it rain forever. FAS gapped to the high of the day as well.
And check out the 3:30 range. More volume spikes, once into weakness and another on a spike back up. And finally, 10 to 20 minutes ahead of the close, it did see a runup, but unexceptional volume vs. the rest of the last 2 hours. Remember, before we were seeing a very clear spike up at the bell.
No way to know exactly what's going on, but it sure looks like a bunch of frustrated attempts to catch a late-day run that really only took it back to about the middle of where it traded all afternoon. It's certainly possible someone caught it well, but it's a very different trade now than it was a week ago.
Now an "x" factor: What if the third-party swappers aren't rebalancing on the bell any more, but rather doing partial trades along the way? Frankly, I don't see why they couldn't adjust to something like that.
It puts them at risk of a whipsaw: Let's say they buy some FAS up on the day at 11:30, and it goes back to unchanged by 12:30. They'd likely have to then sell it back out. But the flip side, of course, is that it keeps going - and then they've "won." Sort of reverse slippage, from their point of view. I presume it's some big hedge funds running these swaps, and, if they feel they have an edge reducing the percentage of the hedge they put on at the bell, they'll do it.
This is all speculative. We don't know exactly what goes on; we're just looking at the charts for clues. And right now, those charts say it's time to look for a better plan here.
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