Skip to main content

Experience with Ultra funds - QID and QLD

I have written about the ProShares Ultra funds in previous posts. I would like to recount some of my observations on using these funds to capture gains on swings in the market.

My premise has been that with reasonable market timing, an investor should be able to jump in and out of these funds and capture a reasonable portion of profits in both market downswings and upturns.

I chose to experiment initially with the ProShares UltraShort QQQ (QID). The NASDAQ seemed weak back in January and February so I loaded up on QID. Sure enough we got a market break in late February. As the market tanked, QID gained at twice the rate the PowerShares NASDAQ 100 ETF (QQQQ) declined. So far so good.

After the initial break in the market, the NASDAQ took a couple of weeks establishing a bottom and then began rising. I watched as my profit disappeared. I held on because economic readings led me to believe that the market would move lower rather than rise to new highs. I, and many others with a bearish opinion, were proved wrong.

What do we make of this? My first reaction is to say that ETFs like QID and its cousin the ProShares Ultra QQQ (QLD) should be used for short term situations. Due to their volatility (they attempt to capture twice the performance of the underlying index) one needs to be especially careful in choosing entrance and exit points. These ETFs are for traders, not the buy-and-hold investor.

So I finally gave in and sold my shares of QID. At one point I had a gain of over 8% after four weeks but I managed to fritter that gain away and end with a loss of 5.3%.

Still interested in experimenting with these Ultra funds I decided that if QID was not performing then perhaps I should be thinking about investing in QLD. And so I did. On April 20, I purchased QLD at $87.94. As of April 25, it is up to $90.80, for a 3.25% gain in three days.

Now what? Are we in a new leg in the bull market? should I maintain a short-term outlook on QLD and pull the plug at the first sign of a market decline? As always, market timing is extremely difficult. For now, it seems that the bulls are in charge and the focus is on the positive. We'll hang on but we will be keeping a sharp eye on things and a ready trigger finger.

Comments

Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position.

This first post in the series starts at the beginning: getting good investment ideas.

Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets.

As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professionals and …

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas.

Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what to lo…

Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for Jan 16, 2009

This post is to announce that the latest list of free stock alerts is up and available at Alert HQ. Each week we scan over 7400 stocks and ETFs looking for fresh BUY and SELL signals. We apply a combination of proprietary and standard technical analysis techniques to identify those stocks that are beginning to move. Our goal is to identify stocks or ETFs that are undergoing reversals, either to the upside or to the downside.

Wait, there's more...

We also use the Alert HQ process to generate more free lists of stocks and ETFs

The first byproduct of the Alert HQ process is the Trend Leaders list, our collection of stocks in strong up-trends. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day exponential moving average. This week's list is now available at the TradeRadar site on the Trend Leaders page.

As another byproduct of the Alert HQ process we have generated a list of stocks that have broken either above their upper…