Best Of The Leveraged Long ETFs In A Strong Market Environment

| About: ProShares UltraPro (TQQQ)

Summary

Leveraged long ETFs are capital-building, time-sensitive investments.

They should be bought to be sold, with clear price targets and holding period time limits.

Histories of how they have been previously viewed and their subsequent price behaviors can provide guidance between alternative choices, within personal preferences.

Today's Reward~Risk Tradeoff Map

(used with permission)

Price range forecasts of market makers (MMs), derived from their self-protecting hedging actions while helping big money fund managers adjust their portfolios, are the source of the upside price forecasts on the horizontal (green) scale. Actual prior worst case price drawdown experiences, following prior forecasts similar to today's, are the location coordinates for the (red) vertical risk scale.

Market outlook proxy SPDR S&P 500 ETF (NYSEARCA:SPY) is at location [14]. Most attractive leveraged long ETFs are: 2x ProShares Ultra Financials (NYSEARCA:UYG) at [20]; 3x ProShares UltraPro QQQ (NASDAQ:TQQQ) at [27]; and ProShares Short VIX Short-Term Futures (NYSEARCA:SVXY) at [21].

The inverse relationship of VIX prices to S&P 500 price changes makes this short of a short equivalent to a long position. Its tracking of short-term futures prices provides ample structural leverage to qualify as a member of this ETF set.

As can be seen, UYG offers less upside potential than many other ETFs, but more than SPY, while engaging less downside risk than most of the leveraged ETFs. TQQQ has a fair advantage of upside with reasonable downside exposure for the payoff potential. SVXY is the high-octane performer based on past credentials, but requires confidence in the face of interim temporary adversity possibilities.

Here are recent 6-month daily pictorial histories of these three alternatives. These are NOT typical "stock charts" of past prices. They ARE records of the day-by-day FORECASTS (as made on the dates presented) of ranges of price held likely by experienced market professionals serving big-money fund managers.

Figure 2

(used with permission)

SVXY's 2 for 1 reward-to-risk promise of +24% vs. -12% may deliver, but past forecasts have produced a net gain of only +12.2%. Still, doing that in 39 market days (8 weeks) allows 6+ compoundings a year to generate a CAGR of 109%. Prior experiences of 84 similar forecasts are a credible sample, with 7 out of 10 profitable as the ODDS to consider.

Figure 3

(used with permission)

The 2 for 1 reward-to-risk tradeoff is more credible here, with +9.5% realizations from nearly 7 out of 8 wins as the operative ODDS. Holding period averages of less than 8 weeks jack the CAGR up to +84%. The likely drawdown trauma may be easier to take at only -6.6%.

Figure 4

(used with permission)

Don't bet on a 100% win ODDS rate lasting to eternity. But neither is an over +20% payoff in less than 6 market weeks an essential if beating market performance (on a risk-adjusted basis) is your goal. For many investors, this may look like a preferable choice.

Conclusion

Leveraged long ETFs are temporary capital-building investment vehicles. Their performance is enhanced when the market environment is positive, as it seems to be now. The payoff potentials for these three ETFs are generous, enough for many investors to face the possible, likely temporary, interim discomforts. Commitments should have specific sell targets and no more than 3-month holding period limits.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TQQQ over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.