Wall Street Is Turning Into One Huge Casino

Wow.  I ran the ETF-Cashinator tonight to see what was happening and the volume on leveraged ETF’s is totally insane.   Wall Street has turned into one giant casino.  Check out the movement of EDZ and over 2x the normal trading volume today at 13 million shares vs average of 6 million!   Almost any leveraged ETF (FAS, FAZ, QID, etc) has had huge increases in volume.   When there seems to be a clear indication that the market is sliding or climbing, investors (i.e gamblers) pounce and load up on these ETFs and options.    I have a sinking feeling in my stomach that this isn’t going to end well and the whole thing will get “ripped” apart under the stress and strain of ups and downs.   It’s no different than a jumbo jet that goes through too many periods of compression and decompression until the fuselage rips open.   Be careful.

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2 Responses to Wall Street Is Turning Into One Huge Casino

  1. Fletch says:

    Yep, these leveraged funds are nitro to a stock market rally… or crash. A momentum traders dream. My guess, this may be an influence in the “Xolitility” you’ve been observing over the past couple of years. The thing is, because of the “volaltility decay” caused by their daily compounding effect, they’re aweful to hold for more than a day or two, and thus, terrible for covered calls (except for maybe fairly deep in the money calls). Just look at a 2-year chart of FAS & FAZ, one a triple bull financial, the other a triple bear financial. They are both down around 90% so no matter what way the market goes, you lose. Those two ETFs had to have a reverse stock split or else they’d be trading for pennies! Unfortunately, a lot of individual investors have been hurt by these things. It’s a shame that the SEC hasn’t done more to regulate there uses.

  2. Rich says:

    I debated long and hard whether to include those 3x and 2x leveraged ETFs in the ETF-Cashinator but I decided to do so because they are having a huge impact on the market and money flows based on the volume I’m seeing. The good news is that when the spectacle of leveraged ETFs ends we may be in for a more stable market -if that day ever comes.

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