Cramer on ProShares Ultra ETFs: A Scandalous Rant? ~ The Risk Averse Alert

Tuesday, January 13, 2009

Cramer on ProShares Ultra ETFs: A Scandalous Rant?

Reaction to Tonight's Mad Money "Outrage of the Day"

Yo Jim! ProShares Ultra Short ETFs don't work? They generate "catastrophic losses?"

Look over to the left, Cramer. You see that performance on Most of it came via ProShares Ultra Short positions taken last year while you were driveling about the S&P Oscillator and its "bullish, oversold" condition.

See that? Sweet gains! So, what are you talking about?

Per the case you cite (Oberg: The Perils of the ProShares UltraShorts) ... was the loss in ProShares UltraShort FTSE/Xinhua China 25 — this while China's stock market was coming unglued — the result of an ex-dividend distribution? Did your reporter possibly "overlook" this? The article makes no mention — not one word. Yet, this is exactly what happened (Huge Distributions At ProShares)

I see Mr. Oberg "worked in fixed income, currencies and commodities for Goldman Sachs for 17 years before retiring as a managing director."

Is this the same Goldman Sachs who was rushing its clients into leveraged commodity index funds last year and giving it to us little folks up the you-know-what at the gas pump? I'm impressed by Mr. Oberg's credentials, then!

Why do I smell a rat, Cramer? Funny how the two ProShares ETFs cited in Mr. Oberg's article — China and Financials — are two places Goldman is big into. One wonders (if, indeed, his facts are correct ... I suspect they're not) whether that "venerable" firm, Goldman Sachs, had any part in market manipulations causing said losses?

Is this how you work? You give us the goods on Paulson and Geithner, and then you drop a bomb on the real target your old firm is after?

I have been wondering why you haven't ended up in the East River. I think I may have my answer now...

(Sorry if I have blown your cover.)

Alright. I feel better.


The fade we're seeing here is precisely what I thought might unfold when I wrote, "Ready for a Pre-Melt-Up Mini-Meltdown?" Too bad I changed my mind.

Actually, I am more bothered about having sold my ProShares Ultra ETFs on January 2nd, only to buy them back on January 7th. I should have just held tight. After all, I endured the several setbacks in December, believing full well the market was poised to move higher. Likewise, I continue believing the same right now.

Sure, these last several days have seen the worst selling over the duration of the market's sideways trading since the initial surge off bottom on November 21, 2008. Sure, it would be nice to be on top of every twist and turn the market takes. Yet that's not what I'm cut out for.

Having some better sense of the big picture will in the end still result in a less than perfect trade record. However, taken together, the bottom line should remain stellar. All I can say is so far, so good.

NYSE 5-min

In addition to learning on Sunday that, "a day or two of seemingly threatening trading might be in store as the correction of the past three trading days grinds to form a bottom" ... those of you on my Trade Notification list will recall also being told, "RSI soon bettering its reading at Thursday's close would be a good beginning ... indicating bottom is near."

Well, that hasn't happened yet.

Does this mean the market might consolidate a bit, then sink still lower? Yes, it is possible ... indeed, even likely ... although not a certain bet.

All that really matters in the grand scheme of things is whether a melt-up looms. Nothing today changed my mind about this. The market's underlying technical condition still looks fine (all noted deterioration notwithstanding).

So, if we have to deal with a little more downward pressure, then at least we will have seen it coming.

Which leads to a final point...

Trading ETFs in increments generally is good practice. I didn't this time and I wish I had. That's just the pig in me I guess...

Fast Money
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