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George Maniere
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  • As The S&P Goes - So Goes SPXU and UPRO
    Above my desk I have a big sign that says “the market will always do what the market has always done, misdirect, confuse and confound.” The way the S&P has been behaving since August is proof perfect that this slogan is as true as ever.
    For those of you not conversant with the Ultra Pro Shares ETFs Pro Shares Ultra Pro S&P 500   (UPRO) is a triple leveraged fund that seeks a 300% return on the performance of the S&P for a single day. Conversely, The Pro Shares Ultra Pro Short S&P 500 (SPXU) seeks a triple leverage or 300% return on the inverse performance of the S&P 500. 
    For those of you that read me on a regular basis you know that I was certain back in August that the S&P would break the support line of 1100 and from there would go to 1050 / 1020 and if things got very tight it would go to 960. On October 3rd I was sure that I would be right as I watched the S&P break the 1100 support and hit an intraday low of 1078 before closing at 1100. One or two more days of trading below 1100 would confirm my thesis and I would add to my already overweight position of SPXU. Well I was wrong. Two days at 1100 on the S&P and it began its march up and I was forced to sell at about 1140 and admit that I had been fooled again. Let’s take a look at the chart below.



    As this chart will show the S&P kept its march up and about two weeks ago it formed a consolidation area between 1200 and 1220. There it remained for several weeks. The S&P attempted to continue to consolidate last week as it traded sideways in the $1200-$1220 range. On Friday the S&P 500 closed the week out at the highest prices it has seen since the decline that began in August. Buyers, however, remained impatient and only allowed a week or two of rest. This is a good show of strength as the S&P could have easily experienced a deeper pullback and still remained healthy. While I believe the S&P will need to take a more extended breather, (especially with the uncertainty from Europe) it may make a run towards $1260-$1270. This is a key level to watch in the near term as it marks a prior support level from June and the approximate area of the 200-day moving average. If it breaks through the 200 DMA we will rally to the end of the year. While S&P still has plenty of overhead resistance, the rally from its recent lows has been staggering.
    In conclusion, I think that Fridays rally to 1138 was less of a rally and more of a short covering. I expect to see a pullback to the 1220 level today but there are other factors involved.
     According to the Wall Street Journal, European leaders are nearing agreement on a plan that would see the region's banks raise around €100 billion ($139 billion) in fresh capital, said three people familiar with marathon talks taking place here on Sunday.
    I must interject that the great Jesse Livermore taught us that it is not the news that means anything it is how the market reacts to the news that is important.
    The bank-recapitalization plan is the easiest piece of a three-pronged bargain that the 17 euro-zone nations are hoping to reach during meetings that began Sunday and will continue through at least Wednesday. There remain disagreements on the other two measures—steps to boost the firepower of the bloc's €440 billion bailout fund and, critically, to deal with Greece's spiraling public debt through a complex restructuring.
    German Chancellor Angela Merkel, left, walks with IMF Managing Director Christine Lagarde, center, and ECB President Jean-Claude Trichet during a roundtable meeting of euro-zone members at an EU summit in Brussels on Sunday.
    European Union finance ministers discussed the bank plan during a 10-hour session on Saturday. Swedish Finance Minister Anders Borg said on his way out of the meeting they had agreed to the foundations of a plan. Today will be a very interesting day.


    Disclosure: I am long SPXU.
    Oct 23 3:19 PM | Link | Comment!
  • Silver Waits to Begin the Breakout
    To 250 million people in 51 countries in the world the word for money is the same word as the word for silver. Silver literally means money. According to Noble Laureate Milton Friedman the majority of monetary metal throughout history has been silver, not gold. Gold is the money of kings while silver is the money of gentlemen.
    Before we make a case for silver being money, let’s take a look at what is money? I believe money is the grease or oil that lubricates the supply lines that bring goods and services to where they are needed. Without money our economy would be reduced to barter. The problem with barter is that you would not only have to find someone that has what you want but he would also have to have what you want in return. Let’s face it, in this modern world of infinite goods and services this would be a complete disaster.
    So no matter what we use as a medium of exchange be it gold, silver, paper or sea shells we need an unrestricted supply of money to keep the economy lubricated. Money is a unit of storage or a proxy for value that must be something completely different from what is being exchanged. This is why money must float freely in value to coincide with the law of supply and demand.
    What is the true value of silver? I have no idea. Silver like anything else will fluctuate with the laws of supply and demand. I do know this. If you are waiting for industry or the fiat printing of paper to send silver through the roof, you may be waiting a long time. That is because like a beautiful work of art is in the eye of the beholder the value of silver as money is perceived. It doesn’t come with an instruction manual.
    So here’s where I come down on this. A dollar used to have stamped on it “Silver Certificate.”


     
    They were produced in response to silver agitation by citizens who were angered by the Fourth Coinage Act. The Coinage Act had effectively placed the United States on the Gold Standard which was fine but with each subsequent act the value of the dollar was debased. So in 1878 Silver Certificates were printed. One silver certificate could be traded for a silver dollar. Well in 1960 silver was trading for $1.29 which meant that a silver dollar was worth more than a silver certificate. In March 1964 Secretary of the Treasury C. Douglas Dillon halted redemption of silver certificates for silver dollars and while you could still trade with Silver Certificates. The new currency was the Federal Reserve note which still exists today.
    While I like to hold physical silver there is a logistical problem with doing so. Where do you store it safely? Trading physical silver and gold is also a difficult endeavor. When you buy physical silver there is a premium over the spot price and when you sell physical silver there is a premium below the spot price. This is how brokers make their money. No one will buy or sell you silver without making a profit on the transaction.
    As a result I like some of the ETFs that make holding silver very liquid. I recommend SLV, PSLV and AGQ. These stocks hold the silver and when you buy them you are buying the physical that is stored safely.
    They are very liquid, which means that they can be trade easily on the open market. This makes them a very appealing way to own silver and gold safely.
    So this begs the question in the long term, which way do you think silver will go? Let’s take a look at a chart of Spot Silver below.


    As you can see silver has been in a consolidation period for the last month. For those of you that like the market to move at warp speed let me save you the suspense. It doesn’t.
    In conclusion, after the volatility that silver has gone through since January of this year I think it’s healthy for it to consolidate. When Silver breaks out again it will be to the upside. When silver does break through its consolidation owning SLV, PSLV or AGQ will produce a profitable return.


    Disclosure: I am long SLV, PSLV, AGQ.
    Oct 22 2:58 PM | Link | Comment!
  • How to Successfully Trade UPRO and SPXU
    Pro Shares Ultra Pro S&P 500 (UPRO) is a triple leveraged fund that seeks a 300% return on the performance of the S&P for a single day. Conversely, The Pro Shares Ultra Pro Short S&P 500 (SPXU) seeks a triple leverage or 300% return on the inverse performance of the S&P 500. 
    The Ultra Pro Shares ETFs seek a return that is three times the return of an index or other benchmark (target) for a single day, as measured from one net asset value NAV calculation to the next. Due to the compounding of daily returns, ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period.Leverage can allow an investor to maintain additional exposure to a position with the same or reduced amount of capital.
    This essay will be dedicated to the technique involved in trading these ETFs.



    As we can see on this chart today the S&P traded at a high of 1219.53 and a low of 1197.54 and closed the day at 1215.39. This was one of the least volatile days that I have experienced in the S&P for a while and just stood aside. I have found that trading SPXU works better if there are more volatile swings in the price.
    Well let’s get to it. If you are of the faint of heart don’t even think about touching one of these stocks. In fact when you are trading these stocks you can’t even trade another stock. In fact you will barely have time for a bathroom break. You will see why on the next chart below.



    What we are seeing here is a chart of the S&P for yesterday’s trading in I minute increments. We are also seeing the chart has been changed from a daily chart to a one day chart. Another important distinction is that the four bands (Blue, orange, green and pink) have been changed from regular moving averages to exponential moving averages. The difference between a regular moving average and an exponential moving average is that a regular moving average is simply an unweighted mean of all of the previous numbers or data that came before it and if all of the numbers are added up and divided by the number of days we would have a simple moving average SMA. This can best be expressed by the formula  .
    An exponential moving average (
    EMA) is also called a weighted moving average. The weight for each older data point is decreased exponentially. This formula can best be expressed as 
    The point of an exponential moving average when it applies to the movement of stocks is that the moving averages have greater validity as they are move through the day. As you move through the day the moving average bands carry greater meaning and give you more clues as to which way the stock will move and since a trade like this is or should be for one day this becomes very important. So when you open up your chart make sure you set your moving averages to Exponential moving averages.
    Another very important tool is the MACD and the histogram. I have always found that the MACD and histogram was a powerful tool but when using this tool on a one day chart the chart will almost predict what is coming next. I have found the histogram to be the one true leading indicator in technical analysis but when the chart is set for one minute it is eerie how the MACD will give you a 1 or 2 second heads up as to what is about to happen. Just take a look at the chart above and notice how the MACD mirrors the movement of the actual data on the chart.
    The chart that we have been working on is SPXU which is a triple leveraged ETF of shorting the S&P. Well what if you thought the S&P was going higher what ETF would you use? You are in luck because Ultra ProShares has a triple leveraged ETF for going long the S&P. It is called UPRO and it works exactly as SPXU except it is the inverse.
    This is the exact tool and technique that the hedge funds use. So let’s go over some ground rules. The 1 minute chart is 6 ½ hours of your life. If you have any other stocks make sure you put in your bid and ask before the day begins because you won’t have time once the day gets rolling. The only time you will ever take your eyes off the screen is when you take a bathroom break, when you place a buy and when you sell.
    Take a look at the chart I bought in at 10:15 today and sold at 12:20. I then had to wait until 1:20 to buy back in and sold at 2:15PM. I then waited for what seemed like an eternity but was able to buy in again at 2:50 and sold for the final time at 3:30. The market never gave me another chance to buy back in.
    OK now is the bad news. You knew there was going to be some bad news right. This is poker on steroids. Take a look at the chart. The biggest move I had was $0.17the rest were less so how do you make a lot of money at this? You have to have commit a lot of capital to it. I consider myself a small player but the smallest position I had was $20,000.00.
    Let’s do the math. From 10:15 until 12:20 I made $0.17 a share. From 1:20 to 2:15 I made $.06 a share and from 2:50 to 3:30 I made $0.17 a share. That is a total of $0.40 a share for the day but when you are playing in lots of 10,000 shares that’s a $4,000 pay day.
    In conclusion, I have a story about a hedge fund buddy of mine that I was having a beer with one night. He‘s not the kind of guy that talks the talk. He is more the type of guy that walks the walk. I asked him straight out one night what was the smallest trade he ever made and he told me 1 million shares. It wasn’t bragging. He was almost embarrassed to tell me. Start putting that kind of fire power under a technique like this and you can put up a strong batting average. I would suggest that if anyone wants to try this technique that they do it on paper first to iron out the kinks and get a good feel for working like this. Practice this technique before you commit and capital.


    Disclosure: I am long SPXU.
    Oct 22 6:20 AM | Link | Comment!
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