I ended up reading a post on SeekingAlpha (referenced below). That had some logical reasonings and views that will chime with investors on the short side of the financials. But even so with all this logical reasoning in place, we have to inject US Treasury and Federal Reserve policy into our models when investing in FAZ and FAS.
Let me be the first to say, that I have so far lost money investing in FAZ and FAS (10%) and am posting what I have learned playing FAZ and FAS over the last few months, hopefully to the benefit of others.
First, technical analysis is out the window as the performance of these funds have huge swing days on reactions to the news reporting US Treasury and Federal Reserve Policy on the economy. As for all I know, there is no such technical analysis model that takes the news into account. The valuations of financials in the future is all speculative and much more volatile than any other index right now.
Second, do not bet on market corrections. After large market swings on a trading day, buying the inverse fund is NOT a sure bet. Supplement, your reasoning for buying the inverse fund with something other than a market correction. You may get caught on the wrong side of the train.
Third, know the tools that the US Treasury and Federal Reserve have left at their disposal and bet on public perception, not necessarily your own belief. I maintain the position that these funds are leveraged and are for taking advantage of huge swing periods, not to hold long on your personal beliefs.
Over the last year, the US Treasury and Federal Reserve have timed their agendas and dissemination of information on policy and tools to effectively manipulate public perception on the market. The more you understand these tools, which tools are left at their disposal, and what effect on public perception these tools may have, the position becomes an issue of timing.
Last, I would like to begin the comment section on:
- What tools and policies the US Treasury and Federal Reserve have at their disposal
- When such tools would be deployed
- The intended effect on public perception to valuations of the financials the tool or policy will have.
Hopefully, your comments will provide some insight on smart investing strategies in FAZ and FAS.