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Strategies & Market Trends : LastShadow's Position Trading -- Ignore unavailable to you. Want to Upgrade?

To: LastShadow who wrote (8538)	2/16/1999 8:50:00 AM
From: Jay Lyons	Read Replies (2) \| Respond to of 43080

Another Cramer look at the possible effects of the Profund/Rydex funds on the market. Now that I see how it could work, I feel pretty silly not having my couple of million dollars at work. <G> Mutual-fund day trading? Well, why don't we just go to Mohegan Sun and handicap the bettors? How can people day trade these things? How can mutual funds allow it? How can the SEC turn a blind eye to it? Yes, the word is out that people are flitting in and out of mutual funds as if they are stock. Some of the end-of-the-day selling when the market is down can be directly related to this process, as people bail when the market is down. Of course, they buy when the market is up. I guess the controls at some of these funds are so loose that someone can make money that way. Funds better get control of their books or we will all have to pay for this lunacy. How? OK, let's say I put a couple of million dollars into two of these Nasdaq 100 (NDX) mirror funds. I build the position over two weeks, $200,000 at a time. Then I get short the NDX. And then I blow out of both mutual funds at 3:15 p.m., causing them to sell NDX futures, which causes a huge amount of selling in the NDX. I cover the NDX short, go long and then I put the money right back in at 4 p.m. The next day, these funds buy up the NDX, and then I short the NDX and pull the money out again. Of course, in a perfect world, this strategy shouldn't work. The NDX futures shouldn't be able to knock the stocks; but they do. The mutual funds shouldn't allow this kind of in-and-out. But they do. The government shouldn't allow these funds to roil the market with their trading in the last half-hour. But they do. The funds should admit that they are having an impact on the last half hour. But they won't. So we wait for a big accident to occur. We wait for abusers to play these funds to the detriment of our markets. Then we have a serious tumble. Then we have a six-month investigation by leading government authorities and exchange officials. Then we have pronouncements about how mutual funds shouldn't allow this kind of day trading because it is roiling the markets, despite what the funds say. And the mutual funds then do the right thing. Or they can do the right thing now and ban this kind of in-and-out, or charge a redemption fee, or clip these day traders so it is just not worth it. Which would you do if you were in charge of a mutual fund?