Double Long Using ProShares Ultra Dow30 (ETF) (NYSEARCA:DDM)
What do you do when your deacon economic assessments are telling you to do one thing, but the market is doing another? Is it best to follow your assessments of what the market should be doing or is it best to respect what the market is doing?
Over the past few weeks some investors have become troubled. The market has been stuck, it has not had follow through either way, but it has also been quite volatile and at times the knee jerk reactions in the market have been scary. These have brought to the surface bearish opinions about the economy, earnings growth, valuation levels, liquidity, and about the ability of the market to maintain these levels and move higher.
If you don't know me you can safely consider me to be one of the biggest bears on the market. I believe that the economy is much weaker than what it appears to be, I believe that fabricated dollars from the FOMC have stimulated asset prices to levels where they cannot be sustained, and I believe that the market is setup for a crash, but the price action in the market is not telling me to expect a crash anytime soon.
I think this should be used as an example of what to do.
Most of what I hear about the risks that exist is hard to argue with, I also find it interesting that so much of this has come to the surface recently when the market was stuck in the mud, so to speak, but that's understandable too. What I am noticing, in my opinion, is much more concerning.
Some investors are steering at this market like a deer stares into headlights, they don't know what to think or what to do, they are receiving conflicting opinions about what is happening to the economy and different opinions about what things will look like going forward, and in their constant evaluation of these metrics many people are failing to respect the most important part of it all.
The most important thing to making money in the market is price.
Respecting price is what everyone should do, but that does not imply that the market should always go up. When the market begins to turn we must also respect price because that is also part of how we make money in the market, but lately, through this malaise, through this troubling time that we have experienced over the past few weeks, many investors have forgotten to respect price.
One thing that happened while the market experienced these relatively aggressive oscillations within the sideways channel that it has been in recently is that longer term support levels were tested. Longer term support levels are critically important to longer-term strategies because when longer term support levels are tested we initiate buy signals and maintain those positions so long as longer term support holds. This is what we do in our longer-term strategy, for example, the Strategic Plan strategy, which is currently holding ProShares Ultra Dow30 (ETF) (NYSEARCA:DDM) with an unrealized profit of about 5% so far.
My priced based analysis was not limited to tests of support, however, but the tests of longer term support levels were absolutely the most important part. The test of longer term support triggered the long position, but given the proximity of the market to all time highs we also must respect the all time highs in all of the markets.
At the time I wrote this the NASDAQ was breaking out, the S&P 500 was on the verge of doing the same, but the dow Jones industrial average was still below its all time high by slightly more than the S&P 500, so everything is not yet all clear.
There have absolutely been buy signals already, those now also act as our risk controls and if the market reverses we will get out of any long positions if longer term support breaks, but if longer term support levels hold we are expecting the market to increase by about 5% from where it is today and breaks above all time highs will help us confirm that move should they occur.
Even with some of the bearish macroeconomic observations on the market, our strategies are net long because the market, and based on its price action they told us to be buyers. Price is what matters most to making money in the market, I believe that short term gains lead to long term success by fostering risk control as well, but I do not think that imposing our will onto the market is healthy whatsoever.
The market will always be right even when it is wrong and it is our job to respect that.