Trading Inverse ETFs | Podcast Episode #269

0:07
Hey, I’m Ryan Mallory and this is my swing trading the stock market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how, hey, everybody, this is Ryan Mallory with swing trading the stock market and Today’s episode, we’re going to talk a little bit more about Ember, CTS, we’re going to talk about this dead cat bounce that we are seeing under way, in the stock market, over the past three weeks.

0:43
We’re going to talk about that in a little bit more detail. Today’s email comes from a guy that we’re going to call Skeeter. Now, why do I call this guy? Skeeter rule 41. I don’t want to divulge his identity because you may not want his identity divulge, and I like to give people, Florida, reading games being that.

1:00
I am born and raised in Florida. So, I’m like, kind of like the typical Florida Man without the Criminal record of doing something crazy and stupid Skeeter rights. Good morning, thank you for your content and daily help. I’m learning a lot from you as I have been swing trading since December.

1:18
Love the podcast, that YouTube videos in the patreon content, I was hoping you could spend some time on ETS and inverse ETF specifically. I know that they move off of the bullish ETS, but can the inverse ETFs move off of the buying and selling and the inverse ETF itself and does technical analysis work on these orders?

1:36
That only work with long ETS currently very confused by the This bear Market rally among all the not so good news. That is currently out there the rate hikes, the bad earnings, the GDP relation, good old crazy Nancy etc, etc, etc.

1:53
Nothing seems to shake the Bulls right now but I know if I go bullish, the rug will get pulled out from underneath me immediately. Sincerely, Skeeter now, good email, good questions there and we’ll get into that in just a second. But first, what am I drinking?

2:09
Well, Listener asked me to check out Basil Hayden because I hadn’t done a review on it and it’s been years since I’ve had Basil Hayden but Basil. Hayden is Kentucky, Straight Bourbon whiskey Earthly aged says but it’s only forty percent alcohol, 80 proofs, it’s a lightweight.

2:27
Now there’s a lot of different variations of the Basil Hayden. This particular one is just basically their standard issue. So bottle is really cool. It’s got one of these little copper belts that are going around. It or something with the BH initial on it.

2:43
Pretty cool color on, it looks really awesome to the nose that I mean I pick up some like leather boots or something, I don’t know without the stinky foot Funk that doesn’t show up in it, but it does smell like a leather boot. For some reason, I do pick up a little bit on the pepper side to the black pepper and the label even says you’ll smell some black pepper.

3:01
I can smell a little bit of it, but it’s quite faint to the tongue or to The Taste. I probably didn’t do myself any favors. I ate some beef jerky. Stash years beforehand but it actually comes across pretty spicy. Now when I drink a little bit of water just to cleanse the palate a little bit, you don’t taste anything so it’s really weird the spicy only exist.

3:21
If you have some spiciness on your palette from spicy beef jerky or spicy salt and pepper flavored pistachios. Like what I had but then when I cleanse the palate I mean this thing is almost negligible to water. I would say this is like the Shirley Temple of Bourbons.

3:40
That’s what it kind of comes across with. Yes, I know. It’s got 40% alcohol in it. You can’t taste it. It doesn’t have any kick to. It doesn’t give you any kind of heat doesn’t give you any like, lingering feelings. It just goes out with a whimper, really disappoint. I mean, this is one of your most popular Bourbons out there and it’s really not that good.

3:56
Now, who would it be good for? I would say, for the bourbon lightweights that just don’t want something really hot and spicy I have a few of those friends, they’ll love this stuff and I got a few friends that do drink it religiously and I don’t think that it’s necessarily a bad bird. For everybody, I don’t think it’s necessarily a good bourbon for me.

4:13
I’m going to give this a 50, can’t go higher or lower. I don’t think it deserves to be in the force when I did my initial first sip impression on it, I thought. Okay this is like a 45 but I’ll bump it up to 50 for this podcast here. So Basil, Hayden 5.0 is what I’m giving it now.

4:33
Back to the email here, this guy for those who have been bearish on the market, this guy represents what a lot of people are going through right now. Include Myself. I’m a bit frustrated from this market and it’s not that it catches me by surprise. I expect there to be bear markets that take you far beyond what you ever imagined.

4:50
I’d this expect there to be moments throughout the course of a trading here. That’s going to be frustrating times where it just doesn’t feel like you can get any traction on the market. This is one of those times I definitely feel that way. I’ve been stopped out a few more times than I would prefer to be stopped out over the past month.

5:07
But the good thing is that I’ve never really My exposure Beyond 10% long in my portfolio. So while I get stopped out, that’s not a big deal because I’m keeping my risk tight. Like, for instance today, I think I took a 1.9 percent loss in my qid trade, not a big deal.

5:25
Now, had I held it all the way until the end of the day, I would have been like five percent down on the trade. That’s the kind of difference that we’re working with, and that’s where stop-loss is really prevent you from taking on unnecessary losses. But he’s asked me some questions, like, can the ETF rally for instance? If you have a huge surge of buying power on an ETF like it, that’s a Ultra ETF 3x of the S&P 500.

5:47
Can it go rally? Like because there’s just tons of volume. Can it rally 5x and even though it says, it’s only supposed to write 3x to what the S&P 500 is doing. Let’s say that for instance, U by U PR, oh, that’s the 3x Return of the S&P 500. So if the S&P 500’s up 1%, you PR 0 would be up three percent.

6:05
Because the volume be so intense that you PR o could be a 5%. No, I mean, I’ve never We’ve seen it happen before, I don’t know how it would based off of my understanding. I’m not a necessarily a mathematician or somebody who knows the really fine details of these instruments. But I have never seen in my trading career, these things become dislocated from the underlying ETF that they’re trading to.

6:27
So I would definitely never trade one based off the expectation that that supposed to happen. I’ve never seen it before. Now, remember, until last year, I never even knew that a Futures could go – I mean, until March of 2020. I didn’t even know that. At a barrel of oil could go – in fact I was tempted to buy it when it went – and take delivery on them and just figure out where the heck I was going to take delivery yet.

6:48
I didn’t know at the time but I couldn’t figure out quick enough with that means when you’re buying something that has a negative price value to it. And so I just decided you know, this is outside of my wheelhouse. I’m not going to do it and I inside that turned out to be a costly mistake but nonetheless don’t expect to ETFs don’t go you know Way Beyond you could say the same thing, you know about it going Way, Beyond what it’s pegged to like you PR OB mpeg-2.

7:10
Bye. You could also say, well then on light volume, could it not keep up with spying? No, no, that’s not gonna happen. These are designed and they’re managed to reflect what the S&P 500 is doing. So if it’s a 321 in verse, it’s going to give you a 3 to 1 return.

7:27
It’s a 22 1 inverse. It’s going to give you a two to one return. Remember each night, these ETS reset themselves so they’re not meant to be held long-term. You don’t want to hold these things for like 10 20 years because they Set every day and they deteriorate over time.

7:43
Just look at a chart of qid or sqq. And how many reverse splits that they’ve had to do and where it was trading like, five years ago versus words trading at today. And this technical analysis work on these things. Where does it only work on the long ETS?

8:03
Sometimes I’ll do it from a trade standpoint, if I’m trying to highlight exactly what I’m trying to show and it’s Anna short enough time frame to where it doesn’t. Much from the underlying ETF that it’s showing. But because it resets every day, because the price action resets in order to give you that 2 to 1, or that 321 return that you’re going after over time, the charts are not going to look the same as they do on the underlying asset that they trade off of.

8:27
So when I do my analysis on the cues and I’m saying okay there’s a key support level on the cues about four percent below current price. I don’t expect this to be a long-term trade obviously just like I said you don’t trade these things long Term.

8:52
Then I’m going to put my stop loss, 8% below that. So I base my technical analysis off of the underlying asset. Same thing with, like the svx. You I’m going to be using spy on that or if it’s UPR. Oh, I’m going to be still using spy if it’s tiene or tza or TW m rrw Um, I’m going to base my analysis, my entries.

9:12
My stop loss is based off of the iwm chart, and so, some people are surprised to hear that. I don’t think it helps you to do technical analysis on the inverse ETFs. It’s far better to do it on the ETS themselves, because that’s what they’re reflecting, is spy in iwm and the cues.

9:32
And since I got your ear, make sure to check out swingtradingthestockmarket.com, you are supporting the podcast. When you subscribe, you get all my stock market research each and every day.

9:51
You’re going to get the list of trade setups and I’m following each day as well as analysis on the markets and your big tech stocks individually so ski to wraps up. The whole thing about how frustrated he is with how much bad news is out there.

10:11
Last month, we got another one coming up came in 9.1, we’ve really done nothing but rally since then, since the fomc statement, they hiked rates 3/4 of a percent 75 basis points. What did it do? It still rallied. In fact, it’s done nothing but rally since the fomc, Microsoft and Google had bad earnings and they’re doing incredibly well since then, you’re seeing stocks that constantly are getting gobbled up.

10:35
I think some of it goes back to the covid mindset that people have from March.


11:56
Like I said, they cut the rates an emergency meeting and that was when the market ultimately turned around, it turned around on a dime, and never look back. Are we doing that right now? No, and you hear that old expression, don’t fight the FED don’t fight the fed. That’s what the Bulls were all saying. When the market was going up. Now, they’re actually saying fight the FED fight the FED, they don’t believe drone Powell will continue to raise rates. They think he’s going to Pivot. In fact, they’re pretty much saying that he’s pivoting, but when you really look at what members of the FED are saying throughout the day and even today, what you’re seeing drone Powell say, there’s no intentions of pivoting at this point.

12:21
They think there’s rate Cuts coming next year, for whatever reason. I can’t even fathom. Why they would think that there would be a rate cut. I surely am not expecting a rate cut unless inflation goes back down to 2% or whatever. But here’s the other crazy thing, I think they should be aiming for deflation. Because by the time they get this thing figured out, we may have seen a twenty percent price increase in inflation and that’s just the way they measure it for everyday Americans. It’s probably more like 30 or 40 percent and so that’s a huge increase in the cost of living, we’d be far better off if we can get a period of deflation just to be able to tame the prices and bring things back in alignment, with wages and what people are able to afford.

12:46
But again, you get it back down to 2% after we’ve had two years of eight or nine percent inflation. Guys, you’re just talking about 2% on top of all the inflation still that we’ve already had. I mean, your prices are still going up at that point. Yes, they’re going up by a far smaller amount but people are still going to be hurting at that time.

13:07
So right now, the market’s in this phase where it doesn’t care. It doesn’t care what the news is. I honestly think that right now we’re in this mode, and it can change on a dime obviously, but up until today, we’ve been in this mode to where if we found out that a meteorite was heading towards Earth and was going to wipe out Humanity we’d probably buy, we’d probably be talking about how that is a very bullish development for the market and that’s just how absurd the market can get.

13:44
And people want to say, well, the market price is this in? And the market price is that in? I’m not so sure about that. And how do you know that the market’s priced something in? Do we really know that? We know oh we’re pricing in the FED pivoting? No, I think the market’s just being irrational and that’s very common for the market to do in the hopes that the market’s going to Pivot.

14:03
But what the market is ultimately trying to do is suck in that one last bear into selling, covering, and going long and it’s going to do that until it’s inflicted Max Payne at this point. So for me staying on the sidelines or just trading very small has been a very, very strategic move on my part to minimize the risk in the market for myself.

14:24
Now, if you enjoyed this podcast, make sure whatever platform you’re listening to whether it’s Amazon or Apple or Spotify. Make sure to leave me a five star review. I do appreciate those, keep sending me your questions at ryan@shareplanner.com. I do read them and I try to get every one of them on the air.

14:40
We don’t always have to agree on everything and I don’t claim to be an expert on all things related to the market. What I have to share is my opinions, my experience, my knowledge, and I hope that it can help you guys in the process. Make sure to check out swingtradingthestockmarket.com if you want to get my research. Thank you guys.

14:57
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15:15
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