support/resistance & leveraged ETF time decay

B

BRUCEPRICE

I have an SDS 5 minute chart on my computer right now and see that the price is right at support from 8 days ago. I just looked at the $SPX however and see that the index is at 925 vs a high of 930 from 8 days ago. I had no idea the time decay effect was this extreme. (actually maybe it's even worse: http://marginalizingmorons.blogspot.com/2009/02/measuring-etf-decay.html )

this raises a few questions:

-in people's expericence is the above example typical decay?

-are support and resistance therefore useless in trading these ETF's if your time frame is more than 2-3 days?

-Are trendlines also useless or are they safer?

- do people use the index charts rather than the ETF charts for support, resistance, and trendlines while trading the ETFs?

thanks.
 
Technical analysis is meaningless with levered ETF. This is not because of the decay but because of the reset.

Technical analysis looks at the price history. Essentially, we assume that the underlying price chart has memory so you can see the future from past patterns.

But due to the daily reset and re-leverage, the levered fund only remembers the closing price of the previous day. It has no memory of the price of the underlying either. All it knows is the percentage change of the day. That is, it doesn't know alpha, -- it is purely a beta multiplier.
 
Quote from hedgex:

Technical analysis is meaningless with levered ETF. This is not because of the decay but because of the reset.

Technical analysis looks at the price history. Essentially, we assume that the underlying price chart has memory so you can see the future from past patterns.

But due to the daily reset and re-leverage, the levered fund only remembers the closing price of the previous day. It has no memory of the price of the underlying either. All it knows is the percentage change of the day. That is, it doesn't know alpha, -- it is purely a beta multiplier.
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so it's probably better to do TA on the index charts and pull the trigger when one's criteria is met there?

...on the other hand if enough people are using TA on the ETF charts then wouldn't it begin to work somewhat? or is the price of SDS totally unrelated to bid/ask in that stock and instead pegged directly to the underlying index?
 
Quote from BRUCEPRICE:

so it's probably better to do TA on the index charts and pull the trigger when one's criteria is met there?

...on the other hand if enough people are using TA on the ETF charts then wouldn't it begin to work somewhat? or is the price of SDS totally unrelated to bid/ask in that stock and instead pegged directly to the underlying index?
More...

I'd think more traders are watching the TA of the underlying index than the levered etf, which is a derivative. Still more are watching the stocks comprising the index.
By and large SDS is pegged to SP500 -- if the values diverge, arbitrators will create or redeem shared to bring them in synch.
 
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