Click here for current Signal Trade. See FAQ for more explanations on terms, labels and abbreviations that we use Updates 3:56 PM EST - Tuesday 9/1/20 Short Term $VIX $VXN are rising again, and this is not a healthy sign before end of day. However, $SPX $NDX IWM are ignoring the bearish headwinds from volatility right now as they plow on. We are not comfortable holding any positions overnight in this environment. We will look for low-risk, high-reward setups tomorrow for better entries. Updates 2:29 PM EST - Tuesday 9/1/20 Short Term
We expect to see $VIX $VXN drop some amount and get down close to their 200-hour EMA lines (23.5 for $VIX and 31 for $VXN). $VIX $VXN most likely won't get into these zones until Wednesday. While $VIX $VXN drop, $SPX $NDX IWM should continue their rise further into their orange resistance zones. Updates 10:12 AM EST - Tuesday 9/1/20 Intraday So far what we wrote pre-market has already unfolded. $VIX $VXN are likely to rise a bit more at start of day, resulting in $SPX $NDX IWM dropping a bit at start of day. Then $VIX $VXN are likely to drop back down, and $SPX $NDX IWM will resume their rise as a result. Both $NDX and IWM have already risen sharply. In fact, they may be ready to reverse downward again. Overall there is no low-risk, high-reward setup to enter long or short right now. Chasing prices higher while $VIX $VXN are likely to reverse and rise sharply is a risky scenario. Conversely, we'd like to see $VIX $VXN oscillate downward a bit more before entering UVXY. So we continue to be patient and wait for a low-risk, high-reward setup. Rest assured something will come along soon. As the old say goes: "It's not how much you make, it's how much you keep". And right now we would rather keep our 83% profit level since early July. Updates 9:28 AM EST - Tuesday 9/1/20 Intraday Today is likely to have a lot of sharp reversals. Look for the following intraday swings. $VIX $VXN are likely to rise a bit more at start of day, resulting in $SPX $NDX IWM dropping a bit at start of day. Then $VIX $VXN are likely to drop back down, and $SPX $NDX IWM will resume their rise as a result. $VIX is likely to retest the zone between 23 to 24. Watch for $VIX rising sharply from this zone by end of day. This may result in $SPX $NDX IWM dropping some amount by end of day. We don't expect the moves in $SPX $NDX IWM to be big, whether it's up or down. This is going to make it difficult to trade unless you are a very nimble day trader. Updates 12:20 AM EST - Tuesday 9/1/20 Table of Support & Resistance Zones The S/R table has not changed. $SPX $NDX IWM transitioning to short-term down swings In the context of the big picture, $SPX $NDX IWM are still bullish. Their up channels are still intact and rising. However, the short-term up swings that started on 8/20 for $SPX $NDX may be approaching the end. There is a high probability that they are transitioning to a short-term down swings that will bring them lower within their channels. This is because $VIX $VXN are signaling that they are intent on rising in the short term. Recall we wrote this in our Sunday analysis: The major bearish signal that would indicate when these up channels are done is this: $VIX $VXN $VVIX all rise above their 200-hour EMAs, and stay there for a few days while continuing to coil upward. $VIX $VXN hourly charts below show how they have risen above their 200-hour EMA definitively. They are intent on rising further. The question now is how will they rise. If $VIX $VXN spike up a good distance very quickly, they will burn out and drop down fairly quickly. The corresponding moves for $SPX $NDX IWM will be a sharp drop within their channels, and then another bullish up swing immediately. If $VIX $VXN oscillate gradually across their 200-hour green EMA lines, they will have time to build up a strong bearish base. This is essentially the (1) (2) moves we've been describing. Eventually $VIX $VXN will build up enough support and momentum to erupt in a major way. In this scenario, the corresponding moves for $SPX $NDX IWM will be gradual top formations, followed by the end of their up channels and the start of their down channels (Dive2). By the way, the really bearish scenario is if $VIX $VXN oscillate but don't drop very much below their 200-hour green EMA lines. It means that there is a lot of bearishness building up. So it will be important to monitor the $VIX $VXN patterns that unfold in the short term. We plan to trade UVXY as $VIX $VXN rise. We don't trust $SPX $NDX IWM to show their corresponding bearish moves immediately, even if $VIX $VXN rise substantially right away. However, we caution you not to jump into UVXY right away. Remember that the really bearish scenario involves $VIX $VXN oscillating up and down. So let's wait for the down oscillation before we enter UVXY. That would be the low-risk high-reward setup. And if $VIX $VXN spike up very fast, then the low-risk high-reward setup is to enter into bullish positions after $SPX $NDX IWM have their sharp drops within their channels. 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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Click here for current Signal Trade. See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 10:12 AM EST - Monday 8/31/20 Short Term
We are focusing our attention on small caps IWM in Signal Trades. Updates 9:15 AM EST - Monday 8/31/20 Intraday
This is consistent with what we wrote last night: For Monday, $VIX $VXN are likely to rise up to (1) at the start of the day which is bearish, and then drop down to (2) which is bullish. So first expect a rise in $VIX $VXN UVXY to start the day. Be prepared for the possibility that it is not going to rise higher than 8/27. If you trade UVXY this morning, be prepared for sharp reversal. 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 Click here for current Signal Trade. See FAQ for more explanations on terms, labels and abbreviations that we use Updates 4:50 PM EST - Sunday 8/30/20 We’d like to welcome all new members. There's a lot of information to share here so it may take a while to read this analysis. Table of Support & Resistance Zones The S/R table has been updated. The Big Picture: Still Bullish The yellow up channels visible on $SPX $NDX IWM daily charts above started on April 6 and are still rising. This is a highly bullish state. The major bearish signal that would indicate when these up channels are done is this: $VIX $VXN $VVIX all rise above their 200-hour EMAs, and stay there for a few days while continuing to coil upward. We have not observed this major bearish signal for $SPX $NDX IWM yet. So from a big picture perspective, we can expect their up channels to continue rising higher for a while longer. If you have medium or long term portfolios designed to capture these up channels, the stop-loss for them is just below the blue support zones (see S/R table above). If you missed this article we posted from Wall Street Journal explaining what may bring the end of $SPX $NDX IWM, please read it here. It is an informative analysis. Early Bearish Warnings from Market Internals Market breadth: Market breadth is measured by the Advance-Decline issues (A/D). If this number is positive, it tells us that market breadth is strong. Lots of stocks are rising. If it’s negative, market breadth is weak and vulnerable to major sell-off. We track the A/D moving averages for NYSE and Nasdaq ($NYAD $NAAD) because they provide useful advance warnings. For a while now, $NYAD $NAAD have been forming lower high patterns. This tells us that market breadth has been weakening. Only a small percentage of stocks are responsible for the rise in $SPX $NDX lately. However, consider this as a warning, not a signal yet. This type of bearish divergence can last for weeks. Percentage of stocks above their 200-day MA: Both NYSE and Nasdaq percentages of bullish stocks (stocks above their 200-day MA) rose last week by a small amount. The message here is that short-term bullishness is not done yet. Equity put/call ratio: This ratio got down to a very low number on 8/25. This set the stage for the ratio to rise, from overbought state into selling territory possibly. This means that stocks are vulnerable to selling in the short term. It would appear that we currently have mixed messages from market internals. Therefore we have to rely even more on $VIX $VXN to guide us with the trades. Short Term: Bearish Headwinds from Rising Volatility You may have observed that within $SPX $NDX IWM up channels above, prices swing from the bottom of the channels to the top and back down again. They repeat this process much like a pinball ricocheting in a machine. Capturing these up and down swings within the channels is a profitable short-term trading strategy. But we can’t do it simply by basing our trades on the positions of $SPX $NDX IWM within their channels. In bullish conditions, they can creep along the upper channel edges for a long time. In bearish conditions, they can spend quite some time anchoring themselves at the bottom of their channels. A more reliable strategy is to combine the positions of $SPX $NDX IWM within their channels with the short-term signals from $VIX $VXN. We explain the current patterns for $VIX $VXN on Friday. It bears repeating again because it is important. $VIX daily chart below shows how $VIX has formed a solid support zone above 20.5. This is similar to the $VIX support zone formed in late 2019 early 2020. Back in early December 2019, once $VIX started forming the support zone, it started a move sequence where it swung up to (1), formed spiky tops, then dropped down to (2), and anchored in the support zone. $VIX repeated the (1) (2) move sequence a few more times before the big eruption on 2/20/20. Now we can see that $VIX may be ready to start these (1) (2) moves again. If $VIX $VXN continue to form this (1) (2) move sequence across their EMAs, and if they don't drop below their support zones at (2), they are anchoring to rise in a serious way. In fact, the longer $VIX $VXN do this, the bigger their rise will be. An eruption in volatility will be very bearish for $SPX $NDX IWM. That would end $SPX $NDX IWM current up channels, and herald the arrival of a major down channel (Dive2). But let’s not jump the gun. We are not there yet. We don't have the major bearish signals yet. So please do not start buying UVXY or any inverse ETF to hold over multiple days or multiple weeks. Contango will destroy your capital. To profit in the short term, we have to be nimble enough to capture the (1) (2) $VIX $VXN moves. Short-term Trade Setups
However, do not place any bets right now as we need the pre-market confirmations by $VIX $VXN on Monday morning. Nothing is guaranteed in the market. We want to emphasize again that volatility may rise, but $SPX $NDX IWM are still too bullish right now. $SPX $NDX IWM may plow through the bearish headwinds from rising $VIX $VXN. So we may end up trading only UVXY, and not be able to enter TQQQ SPXL TNA due to the lack of a decent pullback. Note also that these short-term trade setups are quick trades due to the choppy nature of the market right now. Position Sizing Some members asked about strategy for position sizing and liquidity of the 3x ETFs. We have some recommendations to share here. If you are new to trading, we highly recommend that you read it. It may save your capital in the long run. 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 Click here for current Signal Trade. See FAQ for more explanations on terms, labels and abbreviations that we use Updates 3:02 PM EST - Friday 8/28/20 $SPX may rise a bit higher short-term Of all the indices, $SPX is the most bullish right now. It looks poised to rise a bit higher, most likely to tag the the top of its orange resistance zone at 3520 (see S/R table below). This may happen on Monday. Personally we like to buy on pullbacks for everything. "Buy low" or "Buy relatively lower" enables us to maximize our profit and minimize our risk. So we are not going to chase price up in the Signal Trades, especially not before the weekend. There will be plenty of opportunities to trade next week. $VIX $VXN are no longer dead. As they swing back and forth between (1) and (2), there will be opportunities to make money. This morning quick ride upward with UVXY in Signal Trades demonstrated this. In fact, there most likely won't be setups to buy and hold for a few days, to enjoy a ride that lasts multiple days. As long as $VIX $VXN are swinging between (1) and (2), market will be choppy. So to capture profit, we have to be nimble with our entries and exits. Updates 12:03 PM EST - Friday 8/28/20 $VIX $VXN may still not be done rising yet We must confess: something seems fishy about $VIX $VXN $VVIX spiky tops. On the surface they look like they are done rising short term. In other words, the move to (1) is done. And we should expect $VIX $VXN $VVIX to drop down to test their support zone as part of move (2). But they are not doing so, at least not yet. For those who are not familiar with these indices, they are:
Most of you have probably tracked $VIX before. It certainly garners a lot of attention. But it behooves you to track $VXN and $VVIX as well. They are not as popular. Their charts are harder to decipher. But when both $VXN and $VVIX move in tandem and shout the same message, we have to pay close attention. Right now both $VXN and $VVIX are forming big thrusts followed by big drops on their intraday charts. They are certainly telling us that volatility is rising across the board, and the rise may not be done yet. We are sharing this as a warning for traders who may want to protect or collect on their short-term long positions. But don't buy and hold UVXY or VXX. Contango is going to wear down your money pretty quickly. This is a lengthy way of saying be very careful with long entries based on $SPX $NDX IWM right now. Something is brewing under the surface. Updates 9:18 AM EST - Friday 8/28/20 $VIX $VXN may rise a bit more this morning The (1) (2) moves that we discussed at 1:35 AM EST are unfolding. $VIX pre-market signals show it's likely to rise up to retest its Thursday high this morning, rising possibly to 28. This means $SPX $NDX IWM are likely to pull back as $VIX rises. They will most likely retest their Thursday lows. So the low-risk entry point for $SPX $NDX short-term long positions are near their Thursday lows. You can enter UVXY for a quick ride up along with $VIX at the start. Keep in mind it most likely will reverse quickly. Updates 1:35 AM EST - Friday 8/28/20 $VIX is transitioning $VIX daily chart below shows how $VIX has formed a solid support zone above 20.5. This is similar to the $VIX support zone formed in late 2019 early 2020. Back in early December 2019, once $VIX started forming the support zone, it started a Tik Tok dance where it swung up to (1), formed spiky tops, then dropped down to (2), and anchored in the support zone. $VIX repeated the (1) (2) move sequence two more times before the big eruption on 2/20/20. Now we can see that $VIX may be ready to start these (1) (2) dance moves again. The (1) (2) moves for $SPX $NDX IWM For Friday, $VIX is likely to rise back up to reach (1) which is at about 28.5. It then will drop down to (2), which is near 21. $VXN is likely to rise back up to reach (1) which is at about 38. It then will drop down to (2), which is near 26.5.
Table of Support & Resistance Zones This table has not changed since Thursday. 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 Click here for current Signal Trade. See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 12:50 PM EST - Thursday 8/27/20 Selling is accelerating Well well well! Our prediction is coming sooner than we expected. What we wrote at 12:04 PM EST is coming true. ...we are expecting $SPX $NDX IWM to drop lower in their channels soon, possibly to their green support zones before they find enough buyers to resume the rise. So it was a wise move not to be fooled by $SPX $NDX morning head fake. Alas UVXY reversed too fast for us to re-enter. At this point, we have clear confirmation that $SPX $NDX IWM are going to continue the short-term selling process. We will monitor for pullbacks in $VIX $VXN to enter UVXY. By the way, we prefer UVXY right now rather than the inverse ETF such as SQQQ TZA SPXS. This is because $VIX $VXN movements are more reliable than $SPX $NDX IWM right now. You can't trust stock prices, but you can trust volatility any day. Updates 12:04 PM EST - Thursday 8/27/20 $SPX $NDX IWM: short-term upside is limited As you know our trading system is based primarily on the messages sent out by $VIX $VXN. When both of these indices send out the same message, it's usually a big signal for a directional change in $SPX $NDX IWM. This morning $VIX $VXN have been sending out fluctuating mixed messages. However, they do have one underlying theme. VIX $VXN are transitioning to climb higher. But before they can do so with strong momentum, they must anchor themselves in their own short-term support zones. So $VIX $VXN are spending today probing for these support zones. While $VIX $VXN are doing this, we get a lot of short-term fluctuation in $SPX $NDX IWM as well. There is a good chance that $SPX $NDX will try to climb higher today and Friday. They have been rising despite the bearish divergence from market breadth and volatility. So they may very well continue to do so. In our experience, this is a high-risk low-reward setup. So we are choosing not to chase $SPX $NDX up at this point. Our Signal Trades have generated some handsome profit this week, and we prefer to keep it rather than give it back to the market by overtrading. By the way, please note that we are not saying there will be a huge sell-off. We are not saying Dive2 is here. We are not saying $SPX $NDX IWM up channels are coming to an end. But we are expecting $SPX $NDX IWM to drop lower in their channels soon, possibly to their green support zones before they find enough buyers to resume the rise. Updates 10:09 AM EST - Thursday 8/27/20 Get out of short-term long positions The sell-off is accelerating for $SPX $NDX IWM. We are scaling into UVXY. Updates 10:01 AM EST - Thursday 8/27/20 Conflicting $VIX and $VXN
This mixed message results in rising $SPX IWM and a more bearish $NDX right now. We are not comfortable entering into long or short positions when $VIX $VXN are not sending out the same message. We are not seeing any low-risk setups right now for long or short entries. So we are staying in cash this morning and continuing to monitor for setups. We will post updates if the setups start to form. Updates 9:39 AM EST - Thursday 8/27/20 Stimulus is here to stay From WSJ: “While the Fed didn’t change its inflation target, it made an important and widely anticipated shift by stating that if inflation runs below 2% following economic downturns, it will seek to hold longer-term inflation expectations steady by seeking periods of inflation above 2% when the economy is stronger.” In other words, no pre-emptive move by the Fed to withdraw stimulus if inflation starts to rise and gets close to 2%. Fed will let inflation run higher than 2% to juice the much needed extra growth. Market's response:
We are monitoring for the other scenario where $VIX $VXN will form a spiky top and start to drop back down into their channels. This would be a bullish setup for $SPX $NDX. It would provide us with a short-term pullback to re-enter $SPX $NDX long positions, and to continue capturing the short-term up swing that started on 8/20. However, the setup is not here yet. Proceed with caution. It is not necessary to trade constantly. We are looking for low-risk setups as always. Updates 9:10 AM EST - Thursday 8/27/20 Waiting for Powell $SPX $NDX IWM are not gapping up this morning. Instead they are stuck pretty much where they left off. The same is true with $VIX. This tells us that market participants are awaiting Powell's speech at 9:15 AM EST. Similar to FOMC announcement, this speech has a way of moving prices sharply. Monitor for this scenario during or post speech:
When this combination happens, it is a setup for $VIX $VXN to rise up higher. We will be looking for low-risk setup to enter UVXY for a short-term up swing. Updates 1:05 AM EST - Thursday 8/27/20 High Probability of Selling On Thursday We discussed in our post late Wednesday the fact that $SPX $NDX were breaking out against growing bearish divergence. There is a high probability that $SPX $NDX will gap up at open on Thursday. At the same time, if $VIX $VXN continue to rise sharply above their 200-hour EMA lines on Thursday, it's a lot of bearish headwinds for $SPX $NDX IWM. So there is a high probability that $SPX $NDX will do an intraday reversal on Thursday and start to drop. Expect to see some selling on Thursday, not enough to drop $SPX $NDX down to their green zones yet. But the selling process is likely to start. Table of Support & Resistance Zones This table has been updated with new orange and green zones. Volatility is Likely To Rise Below are $VIX $VXN 2-hour charts that show $VIX $VXN poised to rise above their 200 EMA green lines. If $VIX $VXN surge above 200 EMA green lines, and stay above them for a few days, we may see enough selling to take $SPX $NDX IWM down to their green support zones. 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 Click here for current Signal Trade. See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 2:00 PM EST - Wednesday 8/26/20 Bearish Divergence Growing $NDX $SPX have risen substantially today as we anticipated. However, this sharp rise is happening against a backdrop of growing bearish divergence.
We don't yet have the definitive signal that says $VIX $VXN are about to surge substantially. But the up swings in $SPX $NDX that started since mid August are about done. The prudent thing to do is to take partial profits and tighten stops. This is what we did with our Signal Trades. Updates 9:23 AM EST - Wednesday 8/26/20 Short Term Up Swings To Continue On Wednesday Pre-market reading of $VIX indicates that it's very likely going to drop a good chunk today. This means bullish tailwinds helping $SPX $NDX IWM to rise today. There may be a minor pullback in price to start the day. This will correspond to a minor rise in $VIX $VXN to start the day. Below are potential low-risk entry points for an intraday up swing.
Note that this up swing may end by end of day today. We will monitor and report later. Updates 12:30 AM EST - Wednesday 8/26/20 Short Term Up Swings To Continue On Wednesday $SPX $NDX IWM had a minor pullback early morning as we anticipated pre-market. This provided a low-risk set up to enter short-term swing positions. $VIX $VXN charts at this point show that they are likely to drop on Wednesday. This means that we should expect to see $SPX $NDX IWM rise some more for most of Wednesday. Table of Support & Resistance Zones The S/R table has not changed. Signals From $VIX $VXN $VIX and $VXN 2-hour charts below show how they have been forming spiky tops near the upper edges of their channels. This means they are anchoring to drop. As volatility drops, $SPX $NDX IWM will rise. At open on Wednesday, $VIX and $VXN may quickly form more spiky tops near the upper edges of their channels again. This would be a low-risk setup to enter $SPX $NDX IWM for an intraday up swing. We will confirm this pre-market. Note that due to Jerome Powell's speech on Thursday at 9:10 AM EST, we may see sell signals for $SPX $NDX IWM by end of Wednesday. We will confirm this later on Wednesday. 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 Click here for current Signal Trade. See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 9:23 AM EST - Tuesday 8/25/20 Pre-market Signals $VIX is likely to rise up and do a quick retest of the zone between 22.5 and 23. This means $SPX $NDX IWM will pull back a bit this morning, before resuming their rise. The key is to monitor for how high $VIX $VXN rise up in the channels. If they rise up but stay within their channels, it is a bullish setup for $SPX $NDX IWM. Updates 1:30 AM EST - Tuesday 8/25/20 Key Event This Week The most consequential event this week is Jerome Powell's speech on Thursday at 9:10 AM EST will be carefully monitored by market participants. The reason is complicated, and best explained here. Between now and then, there is a high probability that $VIX $VXN will keep dropping down in their channels, thereby enabling $SPX $NDX IWM to keep rising. Table of Support & Resistance Zones This table has been updated today. Short-term Volatility Signal Trades Members who follow our Signal Trades: Please read our updates here. 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 Click here for current Signal Trade. See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 3:14 PM EST - Monday 8/24/20 Short Term Pretty much as we anticipated at pre-market, $VXN had a sharp spike this morning, corresponding to a sharp drop in $NDX. Interestingly, $VIX rose as well, but not by much. $SPX IWM dropped, but not as much as $NDX. $VVIX has dropped below its worrisome rising channel (see chart from Sunday). This is a short-term bullish signal for $SPX $NDX IWM. So overall, we consider the current pullback in $SPX $NDX as buy-the-dip opportunity. This is because $SPX $NDX are likely to rise in price as $VIX $VXN drop from the top edges of their channels down towards the bottom edges. However, if you are looking for optimal entry price, it may be better to wait until pre-market tomorrow. $VIX $VXN may not be done tagging the upper edges of their channels just yet. Updates 9:16 AM EST - Monday 8/24/20 Short Term $SPX $NDX IWM are all gapping up big this morning which are very bullish price actions. And $VIX is confirming that this bullishness is likely to last through today. However, watch out for $VIX rising a small amount at open, back into the zone between 23.5 to 24. This is $VIX "anchoring to drop" process. If this happens, $VIX would drop from its channel upper edge back into the channel for the 3rd time in 3 sessions. That's a short-term bullish setup for $SPX $NDX IWM. So basically, look for a bit of profit taking at open and setups to buy the dip for $SPX $NDX. We would still stay away from IWM for now. 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 Click here for current Signal Trade. See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 12:55 PM EST - Sunday 8/23/20 Table of Support and Resistance Zones The S/R levels for $NDX QQQ TQQQ have been updated. The Big Picture: $SPX $NDX IWM Channels As the daily charts above show, $SPX $NDX IWM have been in rising in up channels since early April. Within these up channels, on a smaller time frame, $SPX $NDX IWM have been swinging from the bottom of the channels to the top, and then back down again multiple times, much like a pinball ricocheting. As of Friday, $SPX $NDX IWM up channels are still intact, and they are capable of rising some more still. We don't yet have the super bearish warnings from $VIX $VXN $VVIX indicating that these up channels are about done. However, if you haven't already done so, please read this Wall Street Journal article about one potentially high risk that can stop the rise of these up channels. Short-term $SPX $NDX IWM Swings On a shorter time frame, $SPX $NDX IWM have been in up swings within their channels.
At this point, there are multiple additional bearish warnings from market internals. So the short-term up swings are most likely approaching their end dates. The exact timing of this will be issued by $VIX $VXN $VVIX. Bearish Warnings from Market Internals Market breadth: Market breadth for both NYSE and Nasdaq stocks continue to form lower high patterns, typically seen before multi-day price drops for $SPX $NDX IWM. On Friday, there were:
Percentage of stocks above their 200-day MA: Both NYSE and Nasdaq percentages have formed topping patterns. Nasdaq topping pattern has been in place since 7/20. Equity put/call ratio: This ratio is forming a rising bottom pattern similar to the pattern that it formed just prior to January 24 drop for $SPX $NDX IWM. Short-term Volatility $VIX $VXN daily charts below show us where the key pivot points are to monitor for on Monday. Big Picture Volatility Finally, keep an eye on the volatility of $VIX as measured by $VVIX. This index can give us reliable advanced warnings about the end of $SPX $NDX IWM up channels. 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 Click here for current Signal Trade. See FAQ for more explanations on terms, labels and abbreviations that we use. Updates 3:50 PM EST - Friday 8/21/20 Short Term Market breadth is very negative today and did not pick up much by end of day. The Advance-Decline Issues $NYAD $NAAD are negative for NYSE and very negative for Nasdaq. So while $SPX $NDX are rising in prices, the number of stocks that are actually advancing today are way less than the number of stocks that are declining today. This is a bearish pattern that we've been sharing with you in multiple analysis this week. Today's pattern is particularly bearish looking. Additionally $VVIX (volatility of $VIX) is possibly about to form another bearish higher low pattern. Again, all of these readings are bearish warnings. Given that it's Friday and there's a chance that the bearish warnings may turn into bearish signals on Monday, we have decided to exit our Signal Trades TQQQ position. TMAR is a prudent strategy in this kind of environment. (TMAR: Take Money And Run). Updates 2:18 PM EST - Friday 8/21/20 Short Term $VIX $VXN may retest their Friday highs early on Monday. But overall, $VIX $VXN are forming the kind of patterns indicating they are likely to soon drop into the lower zones near the bottoms of their channels after the retest. What this means is that conditions are still short-term bullish for $SPX $NDX. On Monday we may see some profit taking in $SPX $NDX early in the day. However, the current up swings inside $SPX $NDX rising channels aren't done yet. $SPX $NDX are likely to continue grinding upward along the upper edges of their channels. Updates 10:02 AM EST - Friday 8/21/20 Short Term Both $VIX $VXN appear to have finished their morning tests of their upper channel edges. They are likely to drop down into the lower zones of their channels now. This means $SPX $NDX are likely to climb higher from here. Updates 9:43 AM EST - Friday 8/21/20 Short Term Both $VIX $VXN are likely to retest the upper edge of their channels again this morning.
If $VIX $VXN don't exceed these upper edges, those are low-risk places to enter long positions based on $SPX $NDX. Updates 9:19 AM EST - Friday 8/21/20 Short Term Overnight $VIX tagged its upper channel edge. As we discussed, that's a bullish setup for $SPX $NDX. IWM is likely to rise a bit today too, but it is continuing a steady march down. This bearish divergence is an advanced bearish warning, consistent with the advanced bearish warnings issued by market internals. Again, keep this in mind for the big picture, but focus on trading the short-term swings. It looks like for $SPX $NDX, their up swings aren't quite done yet for today. They are likely to climb a bit higher. Click here for current Signal Trade. Updates 12:00 AM EST - Friday 8/21/20 Table of Support & Resistance Zones The zones have not changed since Wednesday. The Big Picture We can see on $SPX $NDX IWM daily and hourly charts how prices have been swinging up and down within rising channels since early April. As long as the channels are intact and rising, the rally that has started since late March is still intact and rising as well. From the big picture perspective, the key question is when will these rising channels end. In Thursday night analysis, we explained how $VVIX is sending out some advanced signals indicating that volatility may be getting ready to rise in a serious way. However, the advanced signals are simply early clues. We need confirmation patterns from $VVIX $VIX $VXN. They are not here yet. We track the advanced signals, so that we will not be caught by surprise. However, we cannot trade on them yet. So please don't bank on the arrival of Dive2 yet. Still it is important to note that in addition to the advance signals from $VVIX, market internals continue to send the same bearish messages that they have been sending out, which we also discussed in Thursday night analysis. So keep abreast of this advanced information, but focus on trading the up/down swings within the channels for now. We will do so until $VVIX $VIX $VXN all shout the same super bearish message indicating the end of the rising channels. Using $VIX vs $VXN A member asked if we can use $VIX to predict $NDX QQQ TQQQ movements, or we can only use $VXN for Nasdaq. In our experience, you should use both. We get the most reliable signals when both $VIX and $VXN are issuing the same message. So wait for their messages to be aligned first. And their joint message can provide overall reliable directions for all 3 indices $SPX $NDX IWM. Additionally, we have observed that $VXN tends to send out messages little bit ahead of $VIX. So again, heed its warnings but wait for both $VIX and $VXN to move in the same direction before making your move. You can see this behavior in $VXN 30-min chart below. Short-term: $VIX $VXN We annotated $VIX hourly chart below to show you key $VIX signals to look for on Friday. Focus on these key zones from $VIX first, then confirm the message with $VXN. It is easier to decipher $VIX chart than $VXN chart. Short-term: $SPX $NDX IWM So in the context of the big picture, the rising yellow channels on $SPX $NDX IWM charts below are still intact and we expect them to continue rising a while longer. However, the up swings that started from the bottom of the channels to the tops are about done.
Monitor $VIX $VXN movements on Friday based on the info we showed on the charts above. When both $VIX $VXN descend into the lower part of their channels, exit or tightly protect short-term bullish positions based on $NDX $SPX. If UVXY signals a low-risk setup pre-market, our Signal Trade may switch into UVXY. Otherwise, we are not placing bearish bets against $SPX $NDX IWM yet. Prices may grind at the top for a bit longer, which means contango will cause inverse ETF to decay quickly. 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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