Why SICK COWS Should Always Get The Axe

Tyler Durden's picture


Two weeks ago we reported that as the market's fascination with the "get poor quick" schemes known as 3x levered ETFs fades away, the time for the next logical step, the death of levered ETFs, has arrived when Direxion announced that it is closing 9 3x levered ETFs, among which the Direxion Daily Healthcare Bear 3X Shares (SICK) and Direxion Daily Agribusiness Bear 3X Shares (COWS). For those curious why everyone should be delighted that such uberlevered, gambling-enabling abortions as SICK COWS should always get the axe, here is a visual explanation from Nanex.

On July 20, 2012 we saw three ETF's exhibit abnormal behavior after hours - all three ran the ask price (and the NBBO) to the moon in a matter of 20 seconds.


What was even more curious were the symbols involved - CURE SICK COWS (we're not making this up).


Below is an animation of the sequences in each, note the symbol cycling through each new animation:



As of August 14, 2012 it would appear that they have decided to kill the SICK COWS rather than CURE them: Dead SICK COWS


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Wed, 08/15/2012 - 19:30 | 2708672 lemonobrien
lemonobrien's picture


Wed, 08/15/2012 - 19:38 | 2708705 DCFusor
DCFusor's picture

Back in the day (maybe still, I'm retired) that hex value is what microsoft's dev studio would set any freshly allocated memory to (at least in C and C++) to make some things easier to debug.  We all laughed when we discovered that.

Thu, 08/16/2012 - 01:49 | 2709388 ackerman81
ackerman81's picture

I think you are confusing DEADBEEF with BAADF00D :-) 

Wed, 08/15/2012 - 19:32 | 2708685 roadsnbridges
roadsnbridges's picture

Just don't touch my dead sick TZA and TNA.

Wed, 08/15/2012 - 19:33 | 2708690 JeremyWS
JeremyWS's picture

I Think this is actually US debt in a few years, just your average exponetial growth you know, no biggie.

Thu, 08/16/2012 - 02:45 | 2709416 MisterMousePotato
MisterMousePotato's picture

Deficits don't matter.

A very smart man said that.

Thu, 08/16/2012 - 07:49 | 2709575 PrintingPress
PrintingPress's picture

Sounds like krugman

Wed, 08/15/2012 - 19:35 | 2708694 buzzsaw99
buzzsaw99's picture

All I need is some FAZolene and a feed to the gubbermint porn server and i can haz all the SICK SHIT i wants.

Wed, 08/15/2012 - 19:35 | 2708696 Squid Vicious
Squid Vicious's picture

I had a funny feeling I shouldn't have left at 4 that day... still holding the bag...

Wed, 08/15/2012 - 19:39 | 2708706 Zero Govt
Zero Govt's picture

sorry but i don't understand the chart!

is it the official unemployment rate divergence with real unemployment?

Wed, 08/15/2012 - 19:39 | 2708707 Gypsyducks
Gypsyducks's picture

Transfixed by the airwaves happily munching the french fried pastures as they are led to slaughter. Moooooooo

Wed, 08/15/2012 - 19:45 | 2708712 Mercury
Mercury's picture

Holy crap.  Was that a fuck-up...or a conspiracy to squeeze out the shorts (which was always the only rational trade with these things) ??

Wed, 08/15/2012 - 19:42 | 2708714 diogeneslaertius
diogeneslaertius's picture

the algo is strong with this one

Wed, 08/15/2012 - 19:45 | 2708719 Darkness
Darkness's picture

So what happened here? If you were long the securities could you do anything?

Wed, 08/15/2012 - 19:48 | 2708726 centerline
centerline's picture

They are just fucking with everyone.  Conditioning.  Who's your daddy?

Thu, 08/16/2012 - 01:02 | 2709344 DeadFred
DeadFred's picture

They own the market now that volume is low enough. These are probing tests to see how their new plaything responds. Once they find the best way to exploit it the boom will be lowered. All your pension funds are belong to us! I expect we will see many more of these strang things, each will provide data for subsequent vampire algos. 

Wed, 08/15/2012 - 19:49 | 2708728 centerline
centerline's picture

Make's one wonder why they seem to WANT real people out of the markets?  Hmmmm....

Wed, 08/15/2012 - 19:54 | 2708737 Caviar Emptor
Caviar Emptor's picture

Hey. Let's lever the entire ES 3X. Then they could sell fractional ETFs :1/2X, 1/3X. And muppets would cheer

Wed, 08/15/2012 - 20:04 | 2708754 chump666
chump666's picture

HFTs are dumb.

Wed, 08/15/2012 - 20:19 | 2708783 centerline
centerline's picture

OK.  That was funny.  Someone missed the humor there.

Wed, 08/15/2012 - 20:47 | 2708848 chump666
chump666's picture

I know.  Humorless a-holes.

Oh well.

Wed, 08/15/2012 - 20:11 | 2708768 urbanelf
urbanelf's picture

Can you guys explain the charts when you post them?

Here's a data stream that explains my confusion: ohas4luseilnu4trawyr3y5noaweurawlieucrtyawbelctneugrkawechrauiekntwrailwuergalusengfxkajegscklruafisydflxuscfkshgzbfliuewiuATWleiutqxilweAKNUdxALkuwdfyLSKUEfnyLKUSEtf luIAETyrlniuriunyscioryzselnfuhzslefknrkfxagsvanwi8xyfkawifyfkuzsetyflisztefnily8zey3.

Wed, 08/15/2012 - 20:43 | 2708794 badalgo
badalgo's picture

the charts are explained here:http://www.nanex.net/aqck/QTSChartExplain/QTSequencer.html it hasn't been updated for the animations because I'm just too busy, but they follow the same guidelines. 

Wed, 08/15/2012 - 22:07 | 2709027 ghengis86
ghengis86's picture

I'll try to explain these as good as (and hopefully better) than Michale J Fox defusing a bomb:

The red (line) seris of dots is the ask or asking price of the ETF, what someone is willing to offer the ETF for sale.  The green (line) series of red dots is the bid price of the ETF, what someone is willing to buy the ETF.  Prior to the high frequency/algorithm/computer trading era, the difference between what someone was willing to sell a security to what someone was willing to pay for a security was relatively small.  Take for example gold right now, which has an asking price of $1,607/oz (that's what seller's want to get for their gold right now) and a bid price of $1,606/oz (that's what buyers are willing to pay for gold right now).  These two prices for a given security are based on quotes; that is, participants are putting their (sometimes supposed (as in quote stuffing-but that's another day)) intentions down in writing at the various exchanges indicating what they're willing to buy or sell and at what price.  When a market is functioning correctly (i.e. not now) buyers and sellers that agree on the same ask/bid price consumate the deal, which is called a trade.  Actual trades should (in normal times) in turn cause the quotes of a security to change, as the market learns at what point buyers and sellers agree.  But in these times, the tail can wag the dog and massive barrages of quotes (that are never intended to be filled) inundate exchanges and distort the price of a security.

Now, having said all that (and probably fucked it up early and often), can you see what's odd about this chart?  The buyers (green dots/line) are quoting roughly the same price for the ETF.  But the sellers are exponentially increasing their asking price in a matter of a few seconds; the price increase ten-fold in 3 seconds.  Does that seem logical?  Have you ever been to an auction where the auctioneer sounds like this: hey-iwanna 500, gimmie-500, looking for 500 - she's a beautiful muppet folks, perfect for bredding - still looking for 500, no takers? no takers at 500?  come on, now its 600, no 900, nope 2000, fuck you all its 4000, fuck should have acted quicker now its 5000!!!! you're all a bunch of sick fucking cows!!!"

Is this indicative of a normal market?  Trades (if any) were not plotted but if anything did trade at 10 times the acutal price, can you see how that would totally fuck things up?

In closnig, I may or may not have had plenty to drink tonight and don't know shit about this 'market' except to stay out.  Hang around here, read up on the Nanex explanation, read the comments (their fucking hilarious plus you occasionally learn something) and hang on.  This shit is only going to get crazier

Wed, 08/15/2012 - 23:40 | 2709207 sitenine
sitenine's picture

+1 Fucking awesome writeup!

[edit] still LOL over your auctioneer analogy.  Thank you.

Thu, 08/16/2012 - 00:00 | 2709258 chump666
chump666's picture


that was good.  using the auctioneer reverse bid example good stuff...

Point is, HFTs are good at one thing, cutting trades on a panic, hence flash crash.  We lay in wait.

Thu, 08/16/2012 - 03:14 | 2709438 FinLen
FinLen's picture


Why arent the bots pumping the China stocks after Wen said easing is on the table tonight???

Thu, 08/16/2012 - 01:24 | 2709371 Money 4 Nothing
Money 4 Nothing's picture

Sounds like my wife negotiatiating with me about how much money she needs to go shoping when she's pissed at me! Nailed it!



Thu, 08/16/2012 - 03:22 | 2709419 MisterMousePotato
MisterMousePotato's picture

Thank you.

That was superb. Truly.

Sadly, though, it may prove to be your internet magnum opus (you just set the bar pretty high).

Would not be surprised to see it turn up in a textbook somewhere, someday.

Wed, 08/15/2012 - 21:33 | 2708951 HardAssets
HardAssets's picture

"Can you guys explain the charts when you post them?"

Its the Matrix that youre watching on the screen Neo.

Wed, 08/15/2012 - 20:53 | 2708856 gwar5
gwar5's picture

That is awesome.

Wed, 08/15/2012 - 21:54 | 2708991 oogs66
oogs66's picture

Path dependent etf's were a disaster from start and should never have been allowed

Wed, 08/15/2012 - 22:25 | 2709061 virgilcaine
virgilcaine's picture

THe banks are testing their Hft Bots, getting ready for battle of the Machines. Anything wiith leverage is going to be coming down in a hard way,

Wed, 08/15/2012 - 23:02 | 2709144 worbsid
worbsid's picture

A husband leads a sheep into the bedroom and says, "Honey, this is the cow I sleep with when you have a headache"

Wife, "You idiot, that's not a cow.  It's a sheep."

Husband, "I wasn't talking to you"

Wed, 08/15/2012 - 23:17 | 2709170 ghengis86
ghengis86's picture

Gilbert Godfry did it a little different when roasting Rosanne:

A farmer married to Rosanbe walks into the bedroom with a sheep under his arm and gets into bed with Rosanne, saying, "this is the pig I've been fucking.". Rosanne looks at him and says,"That's a sheep, not a pig.". The farmer replies "I was talking to the sheep!"

Wed, 08/15/2012 - 23:22 | 2709180 Itch
Itch's picture

I still find it hard (barring massive liquidity) to get my head around how any leveraged instruments can continue to pay out indefinitely. I would hazzard a guess that if there was ever a run on an ETF, its demise would be practically instant.

Wed, 08/15/2012 - 23:30 | 2709194 sitenine
sitenine's picture

Oh shit, have they run out of muppets?

Thu, 08/16/2012 - 03:52 | 2709450 hugovanderbubble
hugovanderbubble's picture


most brokers doesnt allow to trade any of them

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