Damn, Three Two Times

On Monday the S&P 500 closed above it’s 200 DMA so I was prepared to sell our current inverse ETF position which is the ProShares Ultra Short Dow 30 (DXD) on Tuesday near the close. Typically I wait for a second straight day, which would have been Tuesday, as a sort confirmation in the hopes of reducing the chance of getting whipsawed.

As a reminder the goal with defensive action is avoiding the full brunt of down a lot should it happen, not every breach will result in down a lot so there will be times where a position is entered and then sold without the market having dropped a lot.

My plan yesterday was to sell the DXD, if necessary which would have been of the SPX was above the 200 DMA, five minutes before the close. Any closer to 4:00 and I can’t be certain of getting the trade complete which would be a huge headache.

For most of the last hour yesterday the SPX was a few tenths of a point above or a few tenths of a point below the 200 DMA which stockcharts.com had at 1113.93; it will be a little different today. Given how the market was trading, within a few tenths of a point either way, I decided about ten minutes to the close to not place any trade even if it ticked back over the 200 DMA. The thinking was if the market continues higher on Wednesday I can always sell it then as missing by one day would not be a crisis and if it goes lower then the chance for whipsaw has been reduced.

As a practical matter if an individual waits until one minute before the close to place a trade they may not get it in on time to be executed due to the vagaries of the internet and online brokerages. I am quite confident I could get a trade completed for a liquid vehicle like DXD if entered no later than 3:55 but I am not sure where that line in the sand is and don’t want to find out first hand.

In the time I have been relying on the 200 DMA in this manner I cannot recall another instance where the market hopped around the 200 DMA on either side of it so closely as it did yesterday. As the SPX closed below the 200 DMA yesterday (1113.84 for the cash index versus 1113.93 for the 200 DMA) I will wait to sell DXD until there is another two day series of closes above the 200 DMA.

15 Comments

  1. Would an exponential M/A reduce the whipsaws on the DIA? My chart says “yes”. I know you’re using the DXD for tax reasons but for timing perhaps a larger index?

    Reply
  2. sometimes an EMA would be better and sometimes worse. to the other point the index being hedged is reasonably broad and is our benchmark; the SPX.

    the device right now is DXD

    Reply
  3. I still hold the same small long SDS position from May 21. One reason is my per-share transaction costs are probably higher than yours, so I’m more reluctant to pull the trigger. Also I look st the 40 week MA, not saying that’s better but IMO it smooths out some of the whipsaw possibility.

    Once again, it should be said more often, thank you for this blog, lots of intelligent discussion about relevant topics…

    Mark from L-Ville

    Reply
  4. Can you place all or none sell stops a few cents above your bogey?

    Reply
  5. thank you Mark

    anon, generally speaking the more restrictions placed the more reasons you give them for not executing an order that is not convenient for them.

    things like size limits for AON orders probably changes from time to time but I imagine an indivudal investor’s order at 1000 shares or less could be place AON but have tens of thousands of shares to trade (and mind you I am a small RIA)so by going AON i am forcing someone to find one buyer of the thing I need to sell as opposed to letting that person dispose of the position in the easiest way possible.

    Reply
  6. On another topic, I, like most everyone else, am searching for yield. The BAB fund looks interesting, but I fear I’m missing something in the formulation of it. Normally, I try and hedge fixed income, e.g., international funds vs. UUP. In the case of BAB, I’m not sure what would protect the downside. (Taxable is not an issue)

    Any ideas?

    Reply
  7. the BAB program may be short lived. while it won’t hurt the bonds I don’t know what that would do to the funds.

    Reply
  8. Roger,

    I own BAB. Could you please take a minute and explain your comment: “BAB may be short lived”.

    Thanks!

    Reply
  9. i said the program may be short lived. bonds were issued with the higher interest rate with federal help–issuance of this sort of bond may be short lived I believe i have this correct abd that this is well known as part of the stimulus program

    no more issuance should not be a factor for individual issues but i do not know if it means anything for the funds

    Reply
  10. The next 8 bus days shpuòd be week. However, we may still be in a corrective process. It is like the 2008 bot with 2009 bot. About 5 month appart. This will be the same. We have put in a first bottom and have made a bounce, however this downtrend is not over yet.
    Jeff from Milan, Italy
    Roger – The vis. verification word is still a problem – TX

    Reply
  11. Like to say hello to Mike C., SEG, RW Bill B, SD and most of all to you Roger,
    Jeff from Milan, Italy

    Reply
  12. There you go. Problem deferred to another day 🙂

    Reply
  13. Roger
    What are your thoughts on the high speed algorithms that can sense out a trade before it happens and frontrun the tades.

    Reply
  14. for the most part I don’t spend any time on HFT. IMO it has nothing to do with whether or not Cementos Argos (CMTOY), to pick a stock and country I don’t own, will be a good proxy for Colombia for the next few years.

    Reply
  15. one simple solution would be to un-hedge 1/3 first day, 1/3 second day, or…put it back on…or wait.

    charlie

    Reply

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Damn, Three Two Times

On Monday the S&P 500 closed above it’s 200 DMA so I was prepared to sell our current inverse ETF position which is the ProShares Ultra Short Dow 30 (DXD) on Tuesday near the close. Typically I wait for a second straight day, which would have been Tuesday, as a sort confirmation in the hopes of reducing the chance of getting whipsawed.

As a reminder the goal with defensive action is avoiding the full brunt of down a lot should it happen, not every breach will result in down a lot so there will be times where a position is entered and then sold without the market having dropped a lot.

My plan yesterday was to sell the DXD, if necessary which would have been of the SPX was above the 200 DMA, five minutes before the close. Any closer to 4:00 and I can’t be certain of getting the trade complete which would be a huge headache.

For most of the last hour yesterday the SPX was a few tenths of a point above or a few tenths of a point below the 200 DMA which stockcharts.com had at 1113.93; it will be a little different today. Given how the market was trading, within a few tenths of a point either way, I decided about ten minutes to the close to not place any trade even if it ticked back over the 200 DMA. The thinking was if the market continues higher on Wednesday I can always sell it then as missing by one day would not be a crisis and if it goes lower then the chance for whipsaw has been reduced.

As a practical matter if an individual waits until one minute before the close to place a trade they may not get it in on time to be executed due to the vagaries of the internet and online brokerages. I am quite confident I could get a trade completed for a liquid vehicle like DXD if entered no later than 3:55 but I am not sure where that line in the sand is and don’t want to find out first hand.

In the time I have been relying on the 200 DMA in this manner I cannot recall another instance where the market hopped around the 200 DMA on either side of it so closely as it did yesterday. As the SPX closed below the 200 DMA yesterday (1113.84 for the cash index versus 1113.93 for the 200 DMA) I will wait to sell DXD until there is another two day series of closes above the 200 DMA.

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