Wednesday Update: UVXY - The Case To Go Long


Below is the UVXY chart from the last six months of 2018. Notable is the downward sloping trend regression channel and how price broke above the channel mid-October. From there, UVXY spiked higher into the end of the year, moving up from a low around $35 on October 1st, then breaking out of the trend channel at $48.50 on October 10th, which led to generating system Buy Signals on Nov 9th at $49.49 and Nov 29th at $54.55. Ultimately, UVXY reached a high of $94.95 on the morning of December 27th, at the very bottom of the 4th quarter 2018 market decline. 

Fast forward to March 6, 2019. On the updated UVXY chart below, price is about where it was on the October 10, 2018, about to break out of its downtrend channel. If the pattern repeats, we should get Buy Signals over the next month as UVXY's price trend reverses up and the system starts buying the dips. 

But why wait? As the stochastic indicator suggests, downward momentum has exhausted itself as the oscillator is turning up after spending the past two months in deep in oversold readings (red shaded area). Zooming in on the stochastic, today is the first day that this indicator has peaked up above its zero line since January 11th. The last time the stochastic broke above the zero line from deeply (red) oversold was Nov 12, 2018. UVXY was at $50 on that day, running to its $94.95 high over the course of the next six weeks. 

There are three triggers to go Long UVXY:

(1) A System Buy Signal: Premature, at least two weeks away;

(2) A break-out above the downward sloping trend regression channel: This is pending a close above $45, maybe as soon as today's close. 

(3) Stochastic breaking up above its zero line: Likely done as of today. 

If UVXY can breakout above $45 and stay there, two of these three trigger Buys will be in place. We can wait for the system rules to generate a Buy in the next few weeks, or, go Long now because it is such a deliciously tempting trade

If UVXY can close above $45, buy May $50 calls which should be priced between $5.00- $6.00. May has 72 days left until expiration and the trade potential target will be UVXY $90-100. Take partial profits at 35% and let the rest ride.