When the market-makers [MMs] self-protecting hedges - on those at-risk positions they must take to get orders filled on ProShares (3x) leveraged Dow30 ETF (UDOW) - say there's over 3 times as much downside as upside ahead, prepare to jump. That's where they are now.
Out of its 923 market-day existence, UDOW has had the MMs hold that extreme a view only 57 times, and bad price things tend to happen to its holders subsequently. Here is a recap of the MMs price range expectations during the past 6 months, daily. The heavy dot in each vertical range line is the contemporary market price at the time of their implied forecast.
(used with permission)
See how the upside prospect for near-term price gains gets squeezed down when prices rise faster than expectations, as they are now, and have been before (in yellow). Now there is only a 2% potential - from an instrument whose probable price change is 3 times the move in the DJIA index - or only 2/3rds of a percent in the underlier. Today's move was greater than that, and could happen again.
It did in late 2011 despite warnings similar to today's, and again in February-May of this year. Here is a longer-term picture of the past two years daily forecasts, sampled weekly.
But so could downside moves which at their worst in UDOW have been as bad as -13% in July-August, and -16% in September. And have been persistently present at other prior times.
To us, it looks like the UDOW donut tray is being passed with a yummy treat on it; time now to put this capital to work at less risk and more promise elsewhere. Put the profit in your pocket now as a first step if you hold this ETF. That is how wealth-building gains get cumulated by active investing, and get lost in sleepy passive investing.