# Waiting for a correction?



## 14dmoney (Jan 20, 2011)

I am now more in the drivers seat of my portfolio so to speak but I guess I am not sure of how fast I should drive to get to my destination.

I need to buy some ETF's and I was going to start with my CDN equities allocation with either CDZ or XDV. I noticed there has been a huge jump because of the increased dividends announced last week.

So it seems to me that it would be risky to buy after such a big jump. Would you wait to see what happens as there has been such a recent rally over the last 6 months or does that defeat the purpose of passive investing?

I am feeling somewhat impatient as I have been watching everything go up while my funds have been tied up in opening a new direct account and waiting for my funds to transfer.


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## Sampson (Apr 3, 2009)

It'll be impossible to know exactly the best time to get in. Just make sure you have a healthy mix of investments showing low or negative correlation, and keep good amounts of cash on hand.

Feel at ease to invest everything else since you will have the ability to buy more if a correction occurs.


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## hypo (Aug 11, 2010)

Yea, you can't really time ETFs, they are more of a "set and forget" type thing. If you're the kind who just can't leave your portfolio alone, take a small position of your portfolio in an individual stock which you've done your homework on. This allows you to maintain the bulk of your money tied up in "safe" assets while you still get your opportunity to go hands on and try and beat the market.


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## I'm Howard (Oct 13, 2010)

EWC beats CDZ, XDV , and MDY over the last five years.


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## lewin (Jan 10, 2011)

I'm Howard said:


> EWC beats CDZ, XDV , and MDY over the last five years.


I suspect it's because dividend ETF's often lack small cap stocks, which have driven much of EWC's gains over the last two years.


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## zylon (Oct 27, 2010)

*Ewc*



14dmoney said:


> So it seems to me that it would be risky to buy after such a big jump. Would you wait to see what happens as there has been such a recent rally over the last 6 months or does that defeat the purpose of passive investing?


Impossible to time the next correction with any precision. If you plan on holding for the very long term, then timing is not so important. If you would be comfortable with a 15% correction after buying, more power to you.

Personally, once the decision "what" to buy has been settled, I try to wait for the technical indicators to be more cooperative. It's no guarantee of buying at the bottom, but will improve results somewhat.

I've used Howard's suggestion of EWC as an example.


(click on image to enlarge)

Good luck


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## Belguy (May 24, 2010)

If you expect to match index achieving returns, then keep in mind that the index is always fully invested and never carries a cash component.

Many portfolio managers do not match the index returns and usually underperform them over the long term because they are trying to micromanage their portfolios by engaging in such self-destructive behaviour as trying to time the markets.

Buy, hold, rebalance and prosper.


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## 14dmoney (Jan 20, 2011)

I'm Howard said:


> EWC beats CDZ, XDV , and MDY over the last five years.


I think it's kind of funny to invest in CDN equities on the US exchange but since the CDN dollar is so strong right now maybe that's a bonus. 

2 questions:

1. From what I have read here, I can avoid the FX fee by using Norbert's Gambit to convert CDN funds to US currency. So, for example, once I have my discount broker on the phone, I would buy RY-T at market order and ask to journal the holding over to my US side of my account. I then immediately ask to sell RY-N at market order. The US proceeds are now available in my account to purchase EWC. Can anyone else confirm that they have successfully done this at RBC Direct?

2. Does EWC still qualify for the CDN dividend tax credit? Is there a 15% foreign tax withholding from the dividends paid out from EWC if I have it in a non-registered account?


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## lewin (Jan 10, 2011)

14dmoney said:


> I think it's kind of funny to invest in CDN equities on the US exchange but since the CDN dollar is so strong right now maybe that's a bonus.


I don't know why Howard specifically mentioned EWC, but XIC is probably a better option unless one is looking to add currency risk.


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## Mike59 (May 22, 2010)

14dmoney said:


> I am feeling somewhat impatient as I have been watching everything go up while my funds have been tied up in opening a new direct account and waiting for my funds to transfer.


If you base your entrance on waiting for a correction, how will you ever know when to jump in? 

Secular bear markets, cyclical bear markets, and sideways trends are impossible to differentiate between until you crack open the history book 20 years later. 

The Nikkei serves as the harshest of examples about why not to buy when things appear "low", and why I'm a fan of mechanical moving average systems (a la Mebane Faber). Where on this graph after the crash is a good entrance point!?


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## the-royal-mail (Dec 11, 2009)

Good post/point Mike59.

Though I must admit, my tier 3 money has made an incredible return (34% in 6 months!) and I am thinking that if I ever wanted to step off the bus with my money bags, now might be the best time. Convert that to cash, call it a day and say I had fun. I could always stay put, which is my more likely course. Takes guts either way.


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## HaroldCrump (Jun 10, 2009)

If we are set for a correction, let it be a true good ol' fashioned correction of at least 2K - 3K points i.e. bring the TSX into the 10,000 range.
Otherwise, it's useless from a buying opportunity perspective and will simply set us back by a couple of years without any net gain in units/shares held.
I'd be willing to settle for either a slow, gradual rise or a substantial correction, but what I hate most is flat markets.


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## the-royal-mail (Dec 11, 2009)

This news story explains nicely how I feel:

http://www.winnipegfreepress.com/br...06-gold-heads-to-record-levels-117514298.html

I'm thinking I should sit tight on my gold and energy funds. CDN and US index funds would seem to be a good bet too, it's as safe as anything would be.

But we're all speculating. No one knows what will happen.


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## warp (Sep 4, 2010)

Mike59 said:


> If you base your entrance on waiting for a correction, how will you ever know when to jump in?
> 
> Secular bear markets, cyclical bear markets, and sideways trends are impossible to differentiate between until you crack open the history book 20 years later.
> 
> The Nikkei serves as the harshest of examples about why not to buy when things appear "low", and why I'm a fan of mechanical moving average systems (a la Mebane Faber). Where on this graph after the crash is a good entrance point!?



Ive been wating for a "correction" since last year.
Hasnt happened yet...

I have been buying in nibbles and here and there...but Im still sitting on too much cash.
I say "cash" because this portion of my portfolio would probably be in bonds during normal times....but rates and returns are so low, by nay measure that I refuse to buy any bonds or bond etf's.

This has caused a bit of a lag, but I try and remind myself about the relative safety of cash in the event that this "correction" ever comes.

Of course corrections are so obvious when viewd in the past..... now if only someone could tell us when one woill happen in the future.

As a thought on that Nikkei gragh...
Personally I think I know myself...and I think I would have been very very concerned if I was in that market between 1985 to about 1988 when the graph was parobolic!

Heres an intersting note: I was reading an interview given by the guy ( I think his name was Steve Scully)..at APPLE who was hired as the new APPLE CEO away from Pepsi, and who pushed Steven Jobs out in 1985 or so and took over at APPLE.....in that 1985 interview, ( in Playboy, by the way)..he states with COMPLETE conviction that... " in 25-30 years ( which would make it about NOW)...the Russians will have a manned mission to Mars, and the Japan stock market will be worth more than the US stock market)"

Imagine how wrong a supposed brilliant guy could be!!


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## marina628 (Dec 14, 2010)

I Sold all my precious metals last week and bought some ishares ETF ,my portfolio was very unbalanced so i took my decent gains from precious Metals and doing a bit of re balancing.I think Belguy is getting to me ,he is the voice of reason and his posts have made me realize I am a bit too aggressive in my investments .


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## Belguy (May 24, 2010)

You've always got to take into consideration your own particular circumstances, personality, and timeline when developing and maintaining your target asset allocation.

If a crash came tomorrow (and, sooner or later, there will be another crash), you have to be able to still get a good night's sleep confident that your asset allocation has been carefully planned and maintained.

To thine own self be true!!


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## zylon (Oct 27, 2010)

zylon said:


> Impossible to time the next correction with any precision. If you plan on holding for the very long term, then timing is not so important. If you would be comfortable with a 15% correction after buying, more power to you.
> 
> Personally, once the decision "what" to buy has been settled, I try to wait for the technical indicators to be more cooperative. It's no guarantee of buying at the bottom, but will improve results somewhat.
> 
> ...


Here we are three months later and some who couldn't wait to buy are now looking for the sky to fall ... again.

Here is the live chart of EWC. Conditions have almost been met to start thinking of buying. At the present time (June 17) the RSI is at 32.9 ... ideally, I would prefer to see it below 30. The slow STO is well below 20. The price is below the 200 EMA (200 day exponential moving average).

The risk vs reward picture looks a lot better now than it did in mid March.

Disclaimer:

This is not investment advice.
I don't know how far away *the* bottom is.
I don't own EWC and likely never will - it's only an example.
Technical analysis does not predict the future - it shows where we have been.


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## ddkay (Nov 20, 2010)

http://chartgame.com/

Trying this out. Neat site.


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## KaeJS (Sep 28, 2010)

ddkay said:


> http://chartgame.com/
> 
> Trying this out. Neat site.


You have:
$13,640.96in cash
$0.00in shares
*Your position is worth:
$13,640.96 (+36.41%)*

Buy and hold would be:
$9,390.86 (-6.09%) 


"This stock was CIENA Corp. (CIEN) from Jun 05, 1998 to May 30, 2003"

Where is Belguy? 

I feel I did quite well!


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## gibor365 (Apr 1, 2011)

KaeJS said:


> You have:
> $13,640.96in cash
> $0.00in shares
> *Your position is worth:
> ...


I had similar result BTW, when I play black jack or rouletta for free online, I also usually win


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## Belguy (May 24, 2010)

Just by flipping a coin, you will likely be right about half of the time.

I am a buy-and-holder because I do not consider myself to be adept at timing the markets.

If you have had good long term success with your market timing, then more power to you. I have achieved 10 percent annualized returns just by staying fully invested in my selected portfolio and trading only for rebalancing purposes.

That's even better than the 8 percent that I had hoped for.

No two investors are entirely alike.


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## dubmac (Jan 9, 2011)

Belguy said:


> Just by flipping a coin, you will likely be right about half of the time.
> 
> I am a buy-and-holder because I do not consider myself to be adept at timing the markets.
> 
> ...


Belguy...

For your equity portion of your portfolio, do you invest in blue chip stocks? ETF's? or (heaven forbid) mutual funds.


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## kcowan (Jul 1, 2010)

Belguy said:


> If you have had good long term success with your market timing, then more power to you. I have achieved 10 percent annualized returns just by staying fully invested in my selected portfolio and trading only for rebalancing purposes.
> 
> That's even better than the 8 percent that I had hoped for.


From a planning perspective, I think you should use a number lower than 8% for the next ten years. I use 7% and am considering lowering it. And that is with significant risk.


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## ddkay (Nov 20, 2010)

Belguy doesn't increasing or decreasing weightings in your portfolio count as market timing? 

I don't think it matters which way you slice it - every market participant is gambling. Just like in a casino, games get rigged, stocks get rigged. But if you study the details your probability of winning is greater than buying a lottery ticket. 

Lotteries are a tax on people bad at math. Markets are a tax on people bad at economics, risk management, and/or have a faulty BS detector.


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## Belguy (May 24, 2010)

I do not consider rebalancing back to one's original asset allocation to be the same as trying to time the markets with your buying and selling.

Rebalancing is tried and true while trying to time the markets is, for the most part, ultimately a mug's game.

If things keep going as they are, I will soon need to sell some of my bond holdings, which have been doing well, and buy more equities which have been decreasing in value in my portfolio. This, in spite of the fact that many were cautioning against investing in bonds just a few short weeks back and sounding comparatively bullish on stocks. You need to have both of these non-correlated classes of investments in a well constructed portfolio if for no other reason than to reduce your portfolio's volatility unless such volatility happens to be of no concern to you in which case, what the heck, fill up your portfolio with equity investments and get ready for a very exciting rollercoaster ride 

I use mainly broad-based, low fee ETF's for my equity holdings.

Yes Keith, a 7 per cent annual return may be a more realistic goal going forward and, when interest rates start to rise, GIC's may become more attractive again--especially for older geezers like me.


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## ddkay (Nov 20, 2010)

Doesn't re-balancing inherently involve buying and selling? AFAIK you're still betting new portfolio allocation will outperform old portfolio allocation. I can't wrap my head around how that's not market timing.


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## KaeJS (Sep 28, 2010)

ddkay said:


> Doesn't re-balancing inherently involve buying and selling? AFAIK you're still betting new portfolio allocation will outperform old portfolio allocation. I can't wrap my head around how that's not market timing.


There are different types of rebalancing. What is called "Passive Rebalancing" is where an investor rebalances regardless of what will do well.

"Tactical Rebalancing" is what you are referring to. Trying to time the market thinking that one type of security will have a better run.

In simple terms, there are people that rebalance when the numbers tell them they should, there are people that rebalance on a time frame such as once per year, and there are people that balance when they feel one type of equity has an upper hand or more growth opportunity.

Not all rebalancing has to do with timing markets. Only the market timing rebalancing (Tactical) does.

Passive and Time Frame rebalancing do not consider timing the market.


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## Sampson (Apr 3, 2009)

Belguy said:


> I do not consider rebalancing back to one's original asset allocation to be the same as trying to time the markets with your buying and selling.
> 
> Rebalancing is tried and true while trying to time the markets is, for the most part, ultimately a mug's game.


Whether you regard rebalancing as a form of 'market timing' or not is irrelevant.

Think about what happens when you rebalance Belguy. When one asset class has done well you need to sell it and buy the other asset class, essentially selling high - for the gaining asset.

Alternatively, if one asset class has done poorly, you sell some of your other assets and buy that - buying low.

Inherently it IS timing the market, except that you have some reason/justification to do so. Whether you sell or buy at the top or bottom is not certain, but the actions are dictated by timing and how the markets are doing.


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## ddkay (Nov 20, 2010)

Let's say someone maintains 60% in equity 40% in bonds no matter what the market is doing. That's their predefined ratio. If they re-balance to maintain this ratio, there is a quantitative reason behind it. Since there is a quantitative reason to re-balance, my logic says the reason is intentional (tactical). Furthermore that quantitative reason is predefined and based on assumptions of future market price movements (aka market timing).

Let's say someone begins a 60/40 allocation at a stock market top and maintains a 60/40 allocation through a secular bear market with successive recessions and deflation like Japan. This person should still end up with a loss due to an originally greater exposure to equities versus bonds.

I don't have data to make a chart, but it would be interesting to backtest this strategy: 60% Nekkei 225/40% JGB since 1989 with nominal and inflation-adjusted returns. Anyone have a Bloomberg terminal at home?


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## KaeJS (Sep 28, 2010)

ddkay,

the reason people have asset mixes such as 60/40 has nothing to do with the securities held, but everything to do with their risk tolerance and investor profile.

An investor will rebalance back to 60/40 regardless of what the market is doing to fit their risk needs. It is not always tactical.

The reason for establishing an asset allocation and rebalancing are to pinpoint a risk level of the investor and maintain it by rebalancing.

Example:

A retired 67 year old with an asset class of 25/65/10 (25% equity, 65% income, 10% cash) will _NOT_ want his equity to get over 30%, regardless if they are doing well. Why? Because the guy is old and has no job. He doesn't want to be taking risk. If his equity rises to 30 and his income drops to 60, he will want to reduce equity to 25 and increase income back to 65 based solely on his risk tolerance and investor profile. It would not fit his investor profile to let the equity portion increase substantially.

In an opposite example:

A 25 year old who makes $30/hour and just inherited his grandmothers fully paid off $500k house will have an asset allocation of 80/15/5. He will not need income or cash. The income is there just for the fk of it to reduce some risk and the cash is there for buying opportunities. But he is young. He would never want his equity to go to 70, his income to 20 and his cash to 10, would he?

Asset allocation is less about "what is doing well" and more about mitigating risk and suiting investor profile.


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## ddkay (Nov 20, 2010)

I'm not minimizing the significance of allocation ratios. I'm observing parts that determine allocation ratios. You mentioned it starts with individual profile, and what makes up individual profile (existing age, networth, job security). Risk tolerance can also be part of the individual profile. In my experience risk tolerance is partly determined by predictions of market performance.

My point is that in every component of asset allocation, there are predictions of future price movements. As you increase or decrease your positions inside an asset class, you are market timing the value of the sub-components in that asset class- e.g. for equities, the composite index will outperform an industry index like transport or mining or forestry. Or for bonds, the dollar value of US bonds will continue to rise because you predict further deflation.

I think phrases like "you can't time the market!" are just double-speak, marketing lingo invented by the asset management industry to encourage a continuous income stream from retail investors. "You can't time the markets. You're a small guy with a life to attend to! Let our actively managed fund looked after by professional market timers independently decide when to enter or exit positions on your behalf for a small fee."


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## humble_pie (Jun 7, 2009)

it's interesting how all recent points of view in this thread have merit.

arguments very well put by ddkay, kaeJS & sampson.

not that my point of view matters, but i'm willing to believe a basic 60/30/10 ratio (as in equity/income/cash) can be called "passive rebalancing" as kaeJS describes it & this is not market timing in cases where it is adhered to over many years.

but the minute investor starts adding other categories of index funds - and some couch potatoes go up to 7 or 8 categories - then market timing is involved, just as ddkay explains.

le beau gars tells us he holds 14 different securities but somehow considers himself to be a strict rebalance artist. If constant fidgetty rebalancing among 14 index & specialty funds is not market timing then i'm not a biscotti.


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## humble_pie (Jun 7, 2009)

ps is this the thread where zylon has posted a dynamite chart that everybody is ignoring ?

zylon - if you're passing by - works too for the other major canadian equity etfs. Who knew.

also - after superimposing 10 years for ewc, xiu & xic - would you have any idea why ewc has tended to outperform, at least in latter half of the decade. Theoretically the currency drag should not be as significant imho, because all of the equities are canadian ... hmmmn there must be some factor that is escaping my crumblet brain early this monday am.


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## andrewf (Mar 1, 2010)

I think you all may be discounting the fact that adding uncorrelated assets can lower portfolio volatility and even enhance return, even if the thing you add has a negative return. Having more than two funds does not mean you are making a projection about the performance of any given fund. That's the whole point of a portfolio--to address uncertainty. If you were certain of returns, you pile 100% in the top returning security.


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## andrewf (Mar 1, 2010)

humble_pie said:


> also - after superimposing 10 years for ewc, xiu & xic - would you have any idea why ewc has tended to outperform, at least in latter half of the decade. Theoretically the currency drag should not be as significant imho, because all of the equities are canadian ... hmmmn there must be some factor that is escaping my crumblet brain early this monday am.


It is just a simple little thing: EWC is priced in USD, XIU and XIC in Canadian. If you adjust EWC back to CAD, its chart is essentially identical to the other two. CAD securities are flattered by a falling USD.


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## Sampson (Apr 3, 2009)

I was just about to post something tangential to what you write here andrewf. I absolutely agree that the purpose of holding different asset classes is to reduce portfolio beta via uncorrelated assets.

I guess we are addressing a couple things here, one which is 'market timing'. It seems like a bit of a problematic pair of words, as KaeJS points out, it can encompass two distinct methods or rebalancing a portfolio.

I really don't see market timing as being a dirty set of words. How ever you slice it, anytime you add to your portfolio, you have made a decision on timing. The distinction is really whether you base your decision on your perception that a certain asset class will outperform going forward. That's something I think people have a poor ability to do.

FWIW, the majority of our household's portfolio is passive, and we rebalance when some assets fall too far out of our predetermined %.


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## zylon (Oct 27, 2010)

*Effect of currency fluctuation*

On the chart linked below, in the time period specified;

EWC is up 93%
EWC adjusted to Cdn$ is up 55%
XIU is up 56%
The Cdn$ ascended from ~80 to 102

Thinking about currencies has given me many headaches over the years. As someone once pointed out to me - a share is a share is a share. ie: one share of RY is still one share of RY regardless of which currency it's denomination.

http://stockcharts.com/h-sc/ui?s=$CDW&p=W&yr=2&mn=6&dy=0&id=p43075536704

imbedded here if the above doesn't work.


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## kcowan (Jul 1, 2010)

Belguy said:


> I do not consider rebalancing back to one's original asset allocation to be the same as trying to time the markets with your buying and selling.
> 
> Rebalancing is tried and true while trying to time the markets is, for the most part, ultimately a mug's game...


Rebalancing is methodical market timing. Because it is done without thought at the same regular interval, there is no emotion in it. That is the value. 

After all, it forces you to sell your winners and buy losers every time. It reduces returns in favour of minimizing risks. It would have forced you to sell off the TSX when Nortel was on a tear. And it already had that effect as RIM has declined from $149 to under $30. You would have been systematically selling since June 2008, preferrably every quarter.


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## gibor365 (Apr 1, 2011)

Interesting if mini-crush is finished or it was only technical adjustment today 
$VIX is still high , ut went down under 20, $TICK did a nice swing up to 400+ , so institutions started to buy.....


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## KaeJS (Sep 28, 2010)

gibor said:


> Interesting if mini-crush is finished or it was only technical adjustment today
> $VIX is still high , ut went down under 20, $TICK did a nice swing up to 400+ , so institutions started to buy.....


gibor, what site do you use to view these?

Stockcharts.com?

Everytime I try to view things like $VIX or $TICK I end up getting so frustrated with finding a proper charting system. Would you mind sharing?


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## andrewf (Mar 1, 2010)

Yahoo quotes the VIX (an index--non-investable) as ^VIX.

VIX jumped a bit on jitters. I bought some XIV.


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## gibor365 (Apr 1, 2011)

KaeJS said:


> gibor, what site do you use to view these?
> 
> Stockcharts.com?
> 
> Everytime I try to view things like $VIX or $TICK I end up getting so frustrated with finding a proper charting system. Would you mind sharing?


Yes, I use Stockcharts.com 
$VIX or $TICK are tickers, you can view TICK is separate for NASDAQ and DOW, I just change chart to solid line, but I cannot find there $TIKI

@andrewf: VIX and XIV are so f^%^&& volatile  very rare they jump less than 1%/day... maybe I should dedicate some small amount about 1-1.5K to play with VIX/XIV.... you can argue , but this is pure casino


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## andrewf (Mar 1, 2010)

I don't buy VXX. XIV is just a way to make some money on the contango in VIX futures (the reason why VXX is being pile driven into the floor, losing over 75% a year).


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## Henry (Jul 12, 2009)

andrewf:

What do you think about S&P500 is just slightly above SMA200? Do you think SMA200 is a point of support? Do you think the market may crash?


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## gibor365 (Apr 1, 2011)

andrewf said:


> XIV is just a way to make some money on the contango in VIX futures


 Can you please expand on this in simple English?


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## KaeJS (Sep 28, 2010)

gibor said:


> Can you please expand on this in simple English?


Read.

http://en.wikipedia.org/wiki/Contango


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## gibor365 (Apr 1, 2011)

KaeJS said:


> Read.
> 
> http://en.wikipedia.org/wiki/Contango


Tnanks, but I asked for simple English


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## andrewf (Mar 1, 2010)

It's something like selling insurance.

I suspect S&P500 will hold the 200 day, but it doesn't really matter much either way. I'm nibbling at XIV when it dips. I've sold a bit when it was in the 180 range.


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## gibor365 (Apr 1, 2011)

andrew, checked XIV today, Bid/Lots
159.00/5 Ask/Lots 183.00 
Is it always spread so huge?


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## andrewf (Mar 1, 2010)

Was that before the open? The quote when I just checked was Bid 168.75
Ask 168.94 -- 19 cent spread. The spread is usually around there. Spreads always seem to widen out before and after the market.


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