Free lunches? Not for long

Adam Warner has been writing about gaming the triple ETFs with late day buying, or selling and rebalancing. This weekend there was an article in Barrons mentioning this tactic, and the author was swarmed with armchair punters asking questions. Warner posts part of the response (link):

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I'm sorry if I left the misimpression that I was offering some sort of "how to" guide to game the ETF action near the close. In fact, I was alarmed and dismayed at the number of folks who seem interested in trying this. Don't. The people who employ many PhD.'s and much computing power in this area have already crunched the math and written the algorithms to try and exploit these factors.

Most likely they're busy working on ways to get on the other side of this trade already. If anything, the widening recognition of these effects suggest that the game is getting too crowded to continue "working" in a reliable fashion. As soon as you think you have figured out a way to get a free lunch, the market typically presents you with the check....
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The last bit is illuminating. Any time a new sure-fire indicator, or sure-fire trade surfaces and gets publicized, traders typically rush in, trying to gravy train. Often times, it becomes so skewed that the opposite trade becomes the money maker, at least in the short term. This is how markets work, and why it is difficult to beat the market over time.

Novices sometimes believe all they have to do is read a book and identify a chart pattern or two, perhaps a seasonal tendency or two, and it will be free lunches all around. Usually, such lunches tend to be taken away quickly.

As I often mention, risk management, right sizing of positions, money management are at least as important as figuring out up, down, or sideways.

As for the market, much fuss over the swine flu. I don't have much to add, other than noting resilience in most stocks. If the market wanted to tank big time, the news background was there for it to happen. That said, there is a seasonal tendency for a couple of hard down days, early May.

Long MCD, VMI