AI
Wednesday, March 25, 2020 11:25:13 PM
I'm becoming concerned about this.
I put the above chart together for another board earlier tonight, and in doing so, got me to see more clearly what I described here as decoupling of gold and silver 3x ETF trading pairs over the past two weeks.
As the above illustrates, the bull ETF was beaten down quite harshly when the market went onto free fall. At the same time, the bear ETF should have risen a like amount, minus the decay. However, a monstrous contango appeared and dragged the bear EFT down with the bull. I cant explaine it, but it is there clear as day on the chart above.
This leads me to believe the bull ETF will not rise linearly with the expected pop in gold prices in the coming days. It will be penalized by the recent contango and never come close to the levels it was just 3 weeks ago. Likewise, any expected rise in the bear ETF if/when the market drops to test this past Mondays bottom will be muted for the same reasons. Might even be dragged down with the dropping bull again!!!
I understand ETF's were never designed for swing traders or long term holders, they were designed as a hedging tool for over night or over weekend commodities traders that have taken on a life of their own as others saw the potential. So, my plan to make myself whole for my NatGas losses with one ETF up swing, followed by one ETF down swing is now in doubt.
When I was learning about contango and backwardation a few months ago on the UGAZ and DGAZ boards, it was resolved once a month over a period of 2-3 days when the most recent contract month needed to roll into the next contract month. The chart above is nothing like that. It shows two weeks of it. The inverse ETF holders got screwed big time as a result.
I'm not sure what all this means going forward. I'm still noodling it.
I put the above chart together for another board earlier tonight, and in doing so, got me to see more clearly what I described here as decoupling of gold and silver 3x ETF trading pairs over the past two weeks.
As the above illustrates, the bull ETF was beaten down quite harshly when the market went onto free fall. At the same time, the bear ETF should have risen a like amount, minus the decay. However, a monstrous contango appeared and dragged the bear EFT down with the bull. I cant explaine it, but it is there clear as day on the chart above.
This leads me to believe the bull ETF will not rise linearly with the expected pop in gold prices in the coming days. It will be penalized by the recent contango and never come close to the levels it was just 3 weeks ago. Likewise, any expected rise in the bear ETF if/when the market drops to test this past Mondays bottom will be muted for the same reasons. Might even be dragged down with the dropping bull again!!!
I understand ETF's were never designed for swing traders or long term holders, they were designed as a hedging tool for over night or over weekend commodities traders that have taken on a life of their own as others saw the potential. So, my plan to make myself whole for my NatGas losses with one ETF up swing, followed by one ETF down swing is now in doubt.
When I was learning about contango and backwardation a few months ago on the UGAZ and DGAZ boards, it was resolved once a month over a period of 2-3 days when the most recent contract month needed to roll into the next contract month. The chart above is nothing like that. It shows two weeks of it. The inverse ETF holders got screwed big time as a result.
I'm not sure what all this means going forward. I'm still noodling it.
My posts are my opinion. Always trade at your own risk.
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
