UVXY / VXX Follow Up

For a trade of a week or so, with no options leverage, UVXY has performed beautifully and I hope you were able to take advantage of the trade idea.

The P/L looks like this...

With a full size position inclusive of the first trade alert and second add-to alert 2-days later, the average cost is $44.70 for the short position, the fill on the just closed position is $31.69 for a P/L gain of +41%, I have to say, I think that's darn good for this particular play after already having taken the VXX puts off the table earlier this week for an additional gain of +49%, VIX / VXX /UVXY VIX Futures Update

 This is the UVXY 5 min chart and what is interesting to me about it is the upside negative divergence signals in red which is a big part of the reason we took on the UVXY short and VXX puts, however these are not exceptionally strong divergences/distribution, they are clear enough that we knew downside was coming, but they don't look like the wholesale distribution of totally exiting a position.

Quite often when we are seeing a double base form, the second half or low of what would be the second low of a "W" pattern, often has a stronger divergence than the first half. My point is, I don't believe the current base that is forming to the right is the entire base, I think it is merely the second half of a much larger "W" base and the distribution/negative divergence at the top would suggest the same, a pullback, but not a total wiping clean of the position.

In all of this you have to keep in mind that institutional position sizes are very different from our position sizes. Many of you may remember the charts of home builders being accumulated as the Tech bubble popped in 2000. It was not only interesting that after the Tech revolution and Internet that changed the entire world home builders would be accumulated, but that they would be accumulated a couple of years in advance of the housing boom that would support the next bull market. Who would have thought housing would lead the next bull market after such an amazing Tech revolution and how did smart money know years in advance of the actual inflation in housing prices which in my area were double and even triple over a 4 year period?

The larger point however being, those charts I showed you showed a year and a half of accumulation, I mention this to highlight the difference between a retail position that is filled in one order and an institutional position that can take quarters and even a year or more to fill out.

 This would be my proposed VXX/UVXY "W" bottom/double vase with the second low showing a much stronger leading positive divergence than the first and very little distribution in between at the top.

 From a daily chart perspective of UVXY, note the change in volume in the area as well as the ROC in the price trend from down to flat.

If such a base were under construction and nearly finished, then our forecast of the SPX/Market breaking down hard and the SPX slicing through its 200-day moving average the same way it sliced through its 150-day moving average when it bounced off it would seem to be very accurate.

As I have said, we have made a series of lower highs and lower lows since the April 2nd forecast of a head fake/false breakout leading to a move to the downside and that occurred in May as we have seen in numerous 3C charts and Leading Indicators.

This is the SPX daily chart with a large ascending (bullish LOOKING) triangle, our April ind forecast was that we would not see any significant market downside until the clear 2015 resistance areas were broken with a false breakout that would fail. We then got much clearer resistance levels and purposefully formed triangles as we showed at the time with 3C charts that would make traders think they were bullish consolidation./continuation price patterns on a break out above their resistance trend lines even though triangles this big are not consolidation triangles, but most often tops. Technical traders are just too lazy to understand the rules they follow ad break.

At #1 we have the May false or failed head fake breakout above the triangle as we saw in numerous averages and assets at the same time. At #2 we had support as forecast (speed bumps) at the 150-dma in purple with a bounce forming a lower high at #3 and a slice right through the 150-day at #4 with the head fake/stop run below the 200-day moving average in blue at #5 as expected and a bounce off that which would have to at least cross above the yellow 50-day moving average as it has done now at #6. We could see another lower high made with a downside reversal in the area, but even if we don't get that new lower high, I have little doubt that price fails and slices through the 200-day as it did the 150-day, but this time being the 200-day is one of the most watched moving averages and the SPX one of the most watched market averages in the world, I suspect the downtrend since May will take on a whole new character with fear taking over and larger downside moves. 

This would explain the larger VXX/UVXY base and volume in the area as well as price action itself and its ROC to a lateral stage 1-like base.

I'll be entering a VXX based position soon, as usual, I'll always post the idea before entering it in our tracking portfolio.