Updates for Friday 10/2/20

Click here for current Signal Trades.

Updates 3:04 PM EST - Friday 10/2/20

UVXY $VIX $VXN
Today was certainly a tough day to trade in either direction.   This is a market searching for traction.   So far the actions are not really bullish with $NDX $SPX.  IWM offers a glimmer of hope.   

Meanwhile it's equally hard to trade in a bearish direction.   UVXY is dropping along with $VIX and $VXN.   This makes the $NDX $SPX IWM bulls start ranting for "V rally baby".   

Maybe.   Maybe not.

We've been staring at UVXY chart all day, and here are our observations.   

Since mid-August, UVXY has been anchoring to rise in the red zone shown below.   UVXY spiked up in early September, and then has been dropping since.   However, it has not rapidly dropped down as it would if market participants were feeling truly complacent.

Instead, UVXY has been anchoring again in the same red zone since mid-September.   Today it spiked up, but it is likely to test the red zone again.

Clearly the red zone is UVXY short-term support zone.   It is a low-risk place to scale into UVXY and ride the potential breakout.   This is our trading plan in our Signal Trades.

We may pick up only a portion of the UVXY entry today, but that's ok.   We'll get more data on Monday about whether or not we can expect to scale in the rest of the positions.

​Updates 10:36 AM EST - Friday 10/2/20

High Uncertainty Low Panic
Though the morning sell-off has recovered, and the buy-the-dip crowd has come in to pull $SPX $NDX IWM up sharply ​from the morning gap down, there is certainly now a lot more uncertainty descending on the market.

Market is now at the mercy of the body of a 74 years old man.  Last night, the announcement from White House was "he's asymptomatic".   This morning, it is "he's experiencing mild symptoms".   

There is no trading system that will tell us how his conditions will evolve over the weekend.   And this market will buy or sell in the short term based on his conditions.   Do not underestimate human emotions and their predictably irrational behaviors.

Having said that though, we are not seeing a high level of fear yet.   $VIX $VXN gapped up, but not in a state of panic.   So we'll have to see how things evolve.

We have decided to take the short-term loss for now in the Signal Trades, and switch to trading a single position to capture intraday swings only.   We most certainly will not hold overnight in this climate.   

Updates 8:49 AM EST - Friday 10/2/20

Pre-market
The October surprise has come in the form of the announcement that Trump tested positive.

There are 2 potential scenarios that can evolve:
Bearish:   Trump develops symptoms and becomes much worse like Boris Johnson did back in spring.

Bullish:   Trump does not develop symptoms which will make the market much more brazen.   

It's hard to imagine that the profit/loss of our portfolios will depend on the body of a 74-year old man, but there it is.   Market direction is an aggregate of human emotions, and not based on economics reality.   So perception is going to play a big role in this.

$VIX gapped up pre-market and $SPX $NDX IWM are going to gap down at open.    We have removed the stops in our Signal Trades temporarily, and will monitor for  $SPX $NDX IWM ability to rise above the morning gap down.  

If yes, we'll hold long.  Otherwise we'll manually sell TQQQ and TNA and pivot to UVXY.

Updates 1:05 AM EST - Friday 10/2/20

Short-term $VIX $VXN
$VIX $VXN 200-hour EMA lines (bold green) are both going sideway.   This indicates decision time for volatility.  

However, we are leaning towards the "bullish tailwinds" scenario from $VIX $VXN.  This is because in our experience, $VIX $VXN are most threatening when they have spent some time winding themselves tightly around the 200-hour EMA.   

We will find out by early next week if this is the case.   Meanwhile, we think that $VIX $VXN support the "bullish tailwinds" scenario on Friday for $SPX $NDX IWM.

Table of Support & Resistance Zones
The S/R table has not changed since yesterday.

​Short-term $SPX $NDX IWM
As we've been discussing $SPX $NDX IWM have risen up above their 200-hour EMA green lines.   This is bullish.   Furthermore, their 20-hour EMA blue line and 50-hour EMA red line are about to cross over the 200-hour EMA green line.   This usually accelerates the rise in price.

So how far can $SPX $NDX IWM rise up to?   Most likely the orange resistance zones.   Going above this zone would require a lot more buyers to step in.   We don't think that will happen before next week.

​Short-term Signal Trades
​We intend to hold TQQQ and TNA in our Signal Trades, until $SPX $NDX IWM run into resistance in their orange zones.   We will post updates for the Signal Trades pre-market.
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​Disclaimer
The information presented here is our own personal opinion.  It is intended to supplement your own research and trading systems.  Consider it as food for thought. We are not registered financial advisers or licensed brokers.  We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions.  

Note that we trade highly risky 3x leveraged ETFs.  You may end up losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you.   Please read more about them before trading them.

Proshares UltraPro and UltraPro Short ETFs
Direxion Leveraged and Inverse ETFs
Why 3x ETFs like TQQQ lose money over the long term
The risks of investing in inverse ETFs
Simple explanations of contango and backwardation

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