Market Currents
Dow Theorists tell you a lagging Dow Jones Transport Average is an ominous sign for the future...
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Tuesday, February 7, 2012, 8:26 PM ETDow Theorists tell you a lagging Dow Jones Transport Average is an ominous sign for the future health of the stock market, says Mark Hulbert. Unfortunately, for the moment at least, that's what's happening right now. As the story goes, the transports are usually more sensitive to changes in the market barometer, so weakness, even just relative weakness like we're seeing today, could hint at bigger trouble down the road.
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Just to let you know, I responded to one of your comments on James' Germany Part II article in order to clarify my take on the current markets...
Of course - will wait until it actually starts to take place and then follow it down rather than to try and predict when it will happen...
My belief is that it will not be the start of a downtrend, but rather funds "taking profits just to be safe"...look forward to read what reasons the media gives for the profit-taking...
You might well be right. Too tough to call for us to make bets now, either long or short. We prefer options at this point and for most of last year as well. But again that's just how we see it and have chosen to play at this point.
I think you are talking about selling options when you mention options if I remember correctly...
I am also interested in options if the market starts to go south - I am interested in index shorts through the use of TZA calls...
Yes, in general we mostly sell well out-of-money puts in equities we would be willing to own at much lower strike prices. Not doing much there right now, as put premiums are not great currently (VIX low). But do sell some covered calls and even the odd naked call. Even buy the odd call on long or short positions. if the risk-reward looks good. As example have quite a few silver calls at present that were purchased at much cheaper levels in late Dec and early Jan. But rarely if ever buy puts as in our view, it is just more cost effective to sell the underlying and buy back later if it falls.
For us options have provided better returns than dividend income would have, with less risk in our view. But one does have to be selective with them and wait for good risk-reward opportunities.
Don't really follow most of the 2-3x leveraged ETF's like TZA. But have purchased small amounts of TVIX as a bet on increased volatility over time. As with all leveraged ETF's the tracking error over time can be a real issue, but TVIX seems to "catch up" for the tracking error at some point if volatility picks up significantly. We think the risk-reward is good for it at current levels, but as always, only time will tell.
Yeah - as you obviously know and I think you actually referred to in another recent comment - TVIX does not have options...would be interesting to trade those if it did...
It is interesting you mention TVIX - some people believe the fact it is up today on an up market day is a good indicator the market is about to correct...
Probably stating the obvious - it seems these are designed to do very well over a very short period of trading time - maybe a period of twenty to thirty minutes, a few hours, or a day when the market makes a sharp move in one direction (maybe going with the fact they are Direxion shares) and a trader should get in and get out...
Of course - if traders have certain feelings and/or thoughts the market will continue the trend in the morning and they hold it overnight they might obtain fortune from their decision but it is a fairly big risk...
Agree these are for ST trading. Problem is that making ST trades is not that easy to do for most and pretty risky. No good way that most of us know of to realistically predict intraday moves. Today being a good example. Up, then down, then up. Most of this seems to be controlled by the trade bots.