Admittedly, the RSI certainly has some room to go up. The index itself is historically quite high - nearing the highs made in 2007. It is lagging most recent peaks quite heavily. However, this is only until its not. We will need to wait for the turn to come.
Whenever the economic life of a nation becomes precarious, the central government is forced to assume additional responsibilities for the general welfare. It must work out elaborate plans for dealing with a criti-cal situation; it must impose ever greater restrictions upon the activities of its subjects; and if, as is very likely, worsening economic conditions result in political unrest, or open rebellion, the central government must intervene to preserve public order and its own authority. More and more power is thus concentrated in the hands of the executives and their bureaucratic managers. But the nature of power is such that even those who have not sought it, but have had it forced upon them, tend to acquire a taste for more. "Lead us not into temptation," we pray -- and with good reason; for when human beings are tempted too enticingly or too long, they generally yield. A democratic constitution is a device for preventing the local rulers from yielding to those particularly dangerous temptations that arise when too much power is concentrated in too few hands."
Aldous Huxley
Scott,
ReplyDeleteAfter the big nonsense rally of last week, I bought an ultra fund which shorts the Russell 2000.
Any thoughts on that position? Any other good ideas? Does the Vix go to 3?
Brian,
ReplyDeleteI'm wary of the inverse ETFs regardless of if the direction is correct.
Because of the math, they decay very quickly.
For example, XLF and FAZ are both at $10 hypothetically. XLF goes down to $9 one day, a loss of 10%. FAZ goes up 30%. The next day, XLF goes back to $10, no change from the first day, a gain of 11%. FAZ goes down 33% to $8.71 13-(13 *.33). So even though there was no change in the underlying instrument, you lost money. Check out long term charts on stockcharts comparing performance of the index and the supposed inverse index.
If one accepts the above premises and wants to try making money in the short term, go for it. Otherwise, no.
Shorting inverse treasuries ETFs may do the same. I don't think that bubble has burst yet.