The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

MAY I POUR SOME GASOLINE ON YOUR FIRE?

While working on this chapter, I received an email from Grant Cook, a Spiker (an elite-level member of SpikeTrade):

What I found truly remarkable was that this bear market coincided with the introduction of the 2× and 3× ETFs. The volatility and newness of these trading instruments created incredible swings. Probably the most notorious moves were in UYG/SKF and URE/SRS. SKF reached a high of 300 during the collapse with every hedge fund manager piling in, and now it is trading under 20. SRS reached a high also around 300 and now it is trading around 6. Clearly these moves were exaggerated by the leverage and the unusual time decay in these trading tools—but OMG! what moves! The emerging markets—also wild swings, as they responded to the threat of total deflation.

On the upside, what was remarkable was how much support the U.S. Fed gave the market. Despite the animosity and even hatred that much of the media and general public had for Wall Street and the financial markets, the Fed was unwavering in its support—low interest rates, buy-backs, etc. The recovery bounce was much stronger than anyone (including me) anticipated. Some, including me, would describe it as unapologetic manipulation. I think the Fed refers to it as “saving the international financial system,” which it appears they did.

This chart (Figure 9.16) offers a view of the vertiginous decline in the financial sector. UYG—ProShares Ultra Financials—slid from above $70 when ...