ETFs holding things of value (other than just equity shares) makes it possible for things unlike securities to be made able to be valued on a continuing basis. Then they are directly comparable with widely accepted individual and aggregate standards of value.
Active trading in ETF markets puts many financial instruments, including Bonds, Bills, REITs, and derivative securities on a directly comparable basis. In this article we use Commodity Futures as an example alongside several immediate pricing commodity contracts.
"The fund invests primarily in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels. The Benchmark Oil Futures Contracts are the futures contracts on light, sweet crude oil as traded on the New York Mercantile Exchange."
Source: Yahoo Finance
Current trading Characteristics
(used with permission)
Expected rewards for these securities are the greatest gains from current closing market price seen worth protecting short positions. Their measure is on the horizontal green scale.
The risk dimension is of actual price draw-downs at their most extreme point while being held in previous pursuit of upside rewards similar to the ones currently being seen. They are measured on the red vertical scale.
Both scales are of percent change from zero to 25%. Any stock or ETF whose present risk exposure exceeds its reward prospect will be above the dotted diagonal line. Capital-gain attractive to-buy issues are in the directions down and to the right.
Our principal interest is in USL at location , partway between  and . The most appealing (to own) by this Figure 1 view is JJG at location  but further examination will show why this may not be so.
The Figure 1 map provides a good visual comparison of the two most important aspects of every equity investment in the short term. There are other aspects of comparison which this map sometimes does not communicate well, particularly when general market perspectives like those of SPY are involved. Where questions of "how likely?" are present, other comparative tables, like Figure 2, may be useful.
Yellow highlighting of the table's cells emphasize factors important to securities valuations and the security USL, most promising of near capital gain as ranked in column [R]. Pink cell fills indicate inadequate proportions of essential performance competitive requirements, as in [L] and [T].
The price ranges implied by the day's transactions activity are in columns [B] and [C], typically surrounding the day's closing price [D]. They produce a measure of risk and reward we label the Range Index [G], the percentage of the B to C forecast range which lays between D and C.
Today's Gs are used for each stock's past 5 years of daily forecast history [M] to count and average prior [L] experiences. Fewer than 20 of Gs or a shorter than 3 years history of Ms are regarded as statistically inadequate.
[H] tells what percentage of the L positions were completed profitably, either at range-top prices or by market close above day after forecast close price entry costs. The Net realization of all Ls is shown in [ I ].
[ I ] fractions get weighted by H and 100-H in [O, P, & Q] appropriately conditioned by [J] to provide investment ranking [R] in CAGR units of basis points per day.
The pink cell highlighting provides fatal investment evaluation conditions for two candidates. The small number of JJG history samples are a product of that commodity's today price being below the MM community's low end forecast price. The negative value of [G] in that row is not usual.
The daily price subjects of attention in both USL and OIL are almost identical, except that the USL prices are of what is expected a full year from now, while OIL quotes reflect immediate market influences. The difference is reflected in the [F] Risk column of maximum actual experienced price draw-downs during the holding periods suggested for each in [L and M]. The 144 and 110 days of samples are close to equal proportions of the 5 years 1261 market days.
Both show a current upside forecast [E] of 12 to 13% potential gain, but USL only faced an average maximum draw-down of -4.4%, while OIL actually encountered average maximum price declines in the period of -23%. USL had profits from its 144 forecast sample 10 out of every 11, while OIL outcomes in its 110 were profitable only 57% of the time, about 6 of every 11.
When you shift over to column [R] the shorter holding time required to collect the 8.6% payoff instead of an 11.5% is more than made up in the [O] column with 7.8% for USL over OIL's 6.6%. But the real advantage comes in the [P] risk column with USL at -0.4% compared to OIL's -10% crippler, where its [F] experiences were nearly twice its [E] gains. Note the [T] Reward to Risk ratio of 0.5 to 1 when Win Odds and holding times are recognized in [R].
The market-index ETF SPDR S&P 500 Index ETF (SPY) provides an equity forecast evaluation parallel to those of the commodity ETFs. Additional market perspective is provided by the 3,300+ stocks for which price range forecasts are available. They currently suggest that while market recovery is under way, it is still far from generally attractive.
On the other hand, R column scores for USL and the top 20 stocks of the forecast population support the primary candidate's competitive capability.
This IS NOT a typical "technical analysis chart" of simple historical (only) observations. Instead, it pictures the daily updated Market-Maker price range forecasts implied by live real-capital commitments in real time. Its communicative value is present here by visual comparisons at each forecast date of the proportions of upside and downside price change expectations by the market-making community, as influenced by the actions of an interested and involved big-$ institutional investing community.
Those forecasts are typically resolved in time horizons of less than a half year, and often in two months or shorter. This one states that of the 144 prior forecasts like today's, ten out of every 11 were completed profitably in 36 market-days (7 weeks) at average +8.6% profits, a CAGR rate of 78+%. No promises, just fun with history.
After comparison of the performances of near-term Market-Maker forecasts for the United States 12 Month Oil Fund, LP with similar forecasts of other technologically-active securities pursued by investor referencing, it seems clear that this ETF can be an attractive investment choice for investors pursuing near-term capital gain strategies
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in USL 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.
Additional disclosure: Peter Way and generations of the Way Family are long-term providers of perspective information, earlier helping professional investors and now individual investors, discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations.
We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So our information presents for D-I-Y investor guidance what the arguably best-informed professional investors are thinking. Their insights, revealed through their own self-protective hedging actions, tell what they believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided, both on blockdesk.com and on our Seeking Alpha Contributor website. Pls see SA articles numbered 1495621 and 1936131.