Tipping a Sacred Cow? Leveraged ETFs in Swing Trade or Investment

Discussion in 'ETFs' started by GrowleyMonster, Sep 13, 2019.

  1. Most of you college boys don't know what cow tipping is. Incorrigably Redneck Me, I know what it is, though personally I don't see what the point of it might be, at least while sober and above the age of 19. Google it. Anyway what I am going to bring everyone's attention to, will not sit well with some. But at the risk of tipping the cow and bringing howls of outrage, I just want to present a few charts here, comparing a single ETF, QQQ, with its 3x leveraged cousin, TQQQ. Now this is only one such pair, and somewhat arbitrary time frames, but let's just have a look at the two instruments superimposed.

    Okay above we see the change in percentage of price from one point in time to 24 hours later. TQQQ gets a little crazy but by the end of the 24 hours hasn't changed much. As you can see, it occasionally presents intraday opportunities. No surprise there. Meanwhile QQQ just goes placidly along it's blissfully peaceful way. I took the average of the hourly prices of each, and QQQ has a +.03% gain in this particular day, while TQQQ has a loss of -.163%. Not much there. TQQQ just gives higher highs and lower lows. More action.


    In the 5 day span above, things start to look a lot different. Within the 5 day period the high price, expressed in percentage from the beginning of the period, coincides almost perfectly, time wise, between the two. Same with the low. TQQQ just swings 3X wider, or more accurately in this case, 2.93X. There is a lot more noise, is all. More than just noise. A full blown ruckus. And yet if you can identify the low and buy there, and sell at the high, you would make 8.57%. One thing you know pretty much for sure is that eventually TQQQ must cross to the other side of QQQ. And probably keep going for a bit but there is no reason to expect the reversal to be symmetrical. It is what it is. QQQ being easier to chart and analyze, one could rely on observing the reversal of QQQ for a TQQQ sell signal.


    What is interesting in the above one month chart is that TQQQ finishes the month significantly higher than QQQ. Interesting, but not really relevant. And it could just as easily have finished significantly lower. So while you might want to hold QQQ for a long time and not really even check on it very much, investing in TQQQ would demand a very good entry, with the price percentage at maximum extension from QQQ. And you could not make your exit just anywhere, at least in this time frame. You would want to TQQQ high is going to be higher than the corresponding QQQ high. So selling off properly is an order of magnitude more important and more touchy.

    This is interesting. In the year chart above, TQQQ earned way less than QQQ over the year. Mind, these time frames begin arbitrarily. If you matched a long moving average so that the crossover is about halfway between the high and low for a year, and began or ended your comparison year there, you might see some symmetry of a higher order. But look how much more money you could have made holding from December to the end of Abril compared to QQQ. QQQ would be much simpler to trade, yeah. And in a general market decline, TQQQ would be a terror ride and you would have little choice but to hang on to it until the market recovers, making that money dead to you for possibly years. Big position? Nah. Couple thousand? In the above case, a 50% gain, though this is perhaps close to an ideal setup and not representative of the general run of things.

    Holey Wackamoley! Look at what has happened over five years! I would say arbitrary time frame, arbitrary results, but if I go back to the beginning of time for QQQ/TQQQ, TQQQ still kicks ass. Does that mean that it will continue to do so on into the future? Intuitively, I doubt it. And yet, look at the chart. Charts can be great deceivers, yes. But still, look at the chart. Mama mia, that's a spicy encherito. Lots of swing trade possibility there. Of course to be real about it, the big run from May 2016 to Aug 2018 would have been broken up by any non-comatose trader or investor in Feb and again in March of 2018. But here we have a long term setup, measured in years and not days, where the highly volatile TQQQ whips QQQ like a redheaded stepchild.

    I know what you are all thinking. This is just one pair, and just one era in time, and it is not relevant to the universe and the overall space/time continuum star trek crap. I am just sayin that it might be possible to play leveraged funds in the long run and not just scalping intraday.

    Here is one last chart and I will quit.

    From its origin, the mighty bull Q pair, above. If you had invested $1k in TQQQ from its inception, and at the same time invested $1k in QQQ, you would have been disappointed with TQQQ and maybe bailed several times before the end of 2011 and maybe again been tempted to bail last year, but for the most part you could have thrown in the towel at any time after 2012 and made a lot more money on the TQQQ than the QQQ. Does this mean the concept is valid? Depends, as Slick Willie would say, on how you define "valid".

    I am not suggesting that everyone go out and buy and hold TQQQ or any other leveraged fund for that matter. At least not right now. But remember, higher highs, lower lows. Might be something fun to do in the next big crash, cause when it goes up from out of the grass it is gonna be something to see.
    gaussian and tommcginnis like this.
  2. Overnight


    You're being silly. Have you ever engaged in it yourself? This cow-tipping thing?
  3. Moi? Surely you could never think such a thing.
  4. To be perfectly honest, I have never even seen it done. I HEARD <ahem> that when you push on the cow it just leans toward you and spreads its feet out for stability and one man can't possibly do it alone. Or else Bossy simply sidesteps with the push, rather than be tipped. Plus, cows can be a bit skittish at night even if they are extremely docile during the day. I am told <ahem> that they like apples and become rather friendly and cooperative when you become known as a source of them.

    Maybe my sources simply are not skilled at the tip. And it is not easy, apparently. Like I said, I would never have reason to attempt this, myself. But let's not confuse reality with a really great meme.
    Overnight likes this.
  5. vanzandt


    With splits and dividend reinvestment, which TQQQ has done quite a bit, $10,000 invested in 2010 would be worth $378,000 today. Show me a fund that has PM that has generated 45% 9 years running.