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Morning Review - 081310

Morning Review - 081310

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Published by pdoor

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Categories:Types, Business/Law
Published by: pdoor on Aug 13, 2010
Copyright:Attribution Non-commercial

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10/25/2012

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.comChristine Clark: 212 448 6085 or cclark@convergex.comBeth Reed: 212 448 6096 or breed@convergex.com
Now, before you read that as a negative enough signal to go out and actually buy some SDS, consider what kind of market we need to see to make thatsecurity pay off in size.
 
We have attached a simple analysis that shows how many down days of 1-5% declines we need to see to get the SDS to 50, or 100.
A summaryof that table:
 
From current market levels, you need to have 21 sequential down days of 1% to see the SDS at $50.
Yesterday’s close was $33.38. To see 100, you need 56days of the same percentage decline.
 
The real payoff in the SDS is, of course, an uninterrupted series of really rough days for stocks.
You only need 5 down days at 5% to get over $50 for theSDS, or 12 similar days to get over 100. The fund has only closed over $38 twice in 2010 –on February 8 and again on July 2
nd
. No coincidence, of course, thatthose were the two best tradable lows for the year.
To sum up, the leveraged short funds serve a purpose even if you never actually trade them.
By measuring their popularity, you can get an interesting take onmarket sentiment. Demand for popular funds like the SDS will actually decline when stocks are oversold. And, of course, their prices will rise to noticeably higher levels –perhaps even new highs – when we have had a string of losing days.
By both measures, U.S. stocks do not look cheap enough to buy, even with the recent selloff.
S&P 500 SDSCurrent level: 1,086 33.3 50.0 100.0 If SDS at 50 If SDS at 1001% Move in the S&P 500 1,076 34.0 21 56 889 6252% Move in the S&P 500 1,065 34.7 11 29 888 6173% Move in the S&P 500 1,054 35.3 7 19 933 6284% Move in the S&P 500 1,043 36.0 6 15 886 6145% Move in the S&P 500 1,032 36.7 5 12 885 618# Days to get SDS to: S&P 500 Would Be:
SDS Moves at 2X Inverse the Daily % Move of the S&P 500
Month Total BGZ DUG DXD FAZ SDS SKF SMN SPXU TWM TZA January 7,390.3 309.6 219.9 553.2 1,057.2 3,201.2 717.9 154.7 174.6 473.8 528.2February 7,701.7 288.1 190.0 592.1 1,049.6 3,517.5 746.5 156.6 198.2 460.4 502.7March 7,511.4 268.6 196.6 552.4 1,231.1 3,240.0 576.9 135.7 226.9 520.9 562.3April 7,113.5 256.4 181.3 497.4 1,060.5 3,194.6 580.5 122.2 218.4 494.9 507.3May 7,319.5 265.0 158.5 538.7 937.3 3,530.5 597.6 131.4 238.5 468.6 453.4 June 8,045.3 314.8 150.3 573.3 983.8 3,698.6 637.7 148.6 330.5 569.7 638.0 July 7,724.1 303.3 146.4 522.1 1,059.6 3,521.4 556.5 115.8 358.6 516.3 624.1
Assets Under Management at Month End (in $ millions)

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