Keystone started shorting energy today and ERY is a vehicle in play now. Note the falling wedge now converging on the current price. The stochastics are oversold and all the indicators are positively diverged showing that price is basing now and set up to receive a nice pop. This chart is a great candidate for an inverted H&S pattern as time moves along, the head and left shoulder already in place, the right shoulder would follow in the days ahead. On the downside 8.75 would be in play for adding; upside target would be the 20 MA at 9.87 for starters, then the large gap at 10.2. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.
KS, great chart on ERY! Do you see a similar chart for TZA or SPXU or FAZ? I moved in on those today speaking of the 3x inverse funds. I'm hoping that TZA can have a similar ride like TNA had from the lows of Oct. 3rd to now. That would be sweet but the fact that this market continues to gap up worries me a bit. Thanks for your great insights KS.
ReplyDeleteSteve
Hello Steve, those 3x, even the 2x for that matter, are dangerous vehicles, only for quickie short term trades since the settlement each day will hurt a longer term holder, IOW, they do not trade like a typical stock or ticker.
ReplyDeleteKeystone is holding/adding TZA for last couple weeks. That would be nice to see a pop so a quick exit stage right can occur. SPXU is the same look. If you study the FAZ price yesterday at 25.88, it is not yet under the prior low from a few days ago so the positive divergence is not official.
For positive divergence to occur, first, the price must make a lower low, then you study the indicators on the chart to see if they slope upwards over the same timeframes. ERY, TZA and so forth are in this camp but FAZ may need to drop more to trigger positive divergence.
Another tip is to study the actual sector or index charts before deciding to enter any trades. For example, study XLE before entering ERY or ERX. Study RUT before thinking about TZA or TNA, look at the Dow before thinking about BGZ or BGU, study XLF before thinking about SKF or UYG or FAZ or FAS, etc.....
Market behavior is very interesting, sometimes what happens is an ovenight event that shocks the markets and the open the next day is down huge. This results in no time for any longs to exit and take their great profits, while at the same time causing short sellers to miss a large move down since they thought they had plenty of time to enter short, and it ends up they did not. These markets are very treacherous and choppy currently, nimbleness is required. Indications are that a dramatic sell off should occur but the bulls keep floating the indexes up on happy quantitative easing talk around the world. Easy free money chases into commodities and equities keeping indexes buoyant.
KS, to reduce the holding cost of these ETFs, do you think it's wise to sell calls on them? I was thinking of selling the 19.0 March Call to help me hedge the downside. What do you think about this strategy? Thanks again for your great insights.
DeleteSteve
Hello Steve, you will have to take that up with your broker. The trading in the 2x and 3x ETF's is speculative so it should be approached from the aspect that money is being placed at risk that can simply vanish in the summer sun. By nature of these trades taking on that risk profile, why bother with options strategies? Perhaps save that for hedging against longer term postions that you truly want to hold. Too many factors involved to give you an answer on that one but something like the ERY is almost best served as the actual hedge vehicle itself.
ReplyDeleteSay if you were long the energy sector with perhaps XOM or long the XLE and remain bullish on the oil, gas and energy sectors, something like ERY can be used as a ST hedge against those positions.
Thanks for your thoughtful reply KS. I was thinking of holding those ETFs for a while. For example, I want to hold TZA until it goes up 3 or 4 dollars. Or is that not wise? Should I take profit if it goes back to 19? What do you think?
DeleteSteve