As the equity markets move into August and September we need to be on the lookout for a cyclic downturn that has the potential to be sharp and nasty. The market closed Friday in what I consider a "no man's land" of indecision: Not weak enough to be on Alert for a "Black Monday," or other form of drama, but not strong enough to overcome traditional seasonal tendencies surrounding this time of year, which not so coincidentally is the subject of this weekend's update. Seasonal Spikes in Volatility Market volatility is measured via the Volatility S&P 500 Index (VIX) and for our purposes today, we are pairing it with UVXY and its call options. The best visual to describe what I see as a high probability spike coming in the VIX is this longer term chart going back three years, setting out a recurring seasonal tendency for VIX to bottom in mid-to-late July and top out anywhere from mid-August to early-October. The range of potential gains from the previous three years suggests VIX, which closed Friday at 20.37, will carry at least up to the mid-20's and maybe as high as the mid-40's in the weeks-to-months ahead. For comparison purposes, last year UVXY went from 20.55 in mid-July to 65.87 on August 5th, mirroring VIX's move from 12.65 in mid-July to 38.56 on August 5th. This year, since its low last Tuesday at 14.40, UVXY has climbed to a high Friday at 17.93, closing the week at 17.39. A spike to at least the mid-20's if not 30's could result in massive percentage returns in UVXY Aug and/or Sep calls. It's possible that Friday was the start of this steep appreciation, or, it could be just a false alarm with the real spike still due starting later this month. In either case, the more I look at this seasonal tendency, the more I want to own UVXY calls going forward. If not already long calls, either August or September, stand-by for another entry sometime next week. VIX - Past three seasonal summer spikes. UVXY 2024 SPY Seasonal Declines: July-Oct 2022-2025 UVXY - Initial call positions as per Friday's Into The Close Update Maintain position(s) subject only to -50% hard stop. If stopped, we may want to enter again later in August. Gold Update We are holding GLD calls from July 14th, but after being up as much as 55% on July 22nd, these calls are now in the red, -25% from entry. Still, the GLD pattern looks bullish. This chart was sent out to PRO Service after Friday's Open, suggesting new GLD calls basis the pattern presented: GLD July 14th GLD Trade This trade was up 53.27% at its peak about one week after entry. That was enough to move the stop up to break-even, which was hit two days later on Jul 24th. If out, its time to get back in via the Sep or Oct calls set out below. If still holding Sep, consider adding Oct on a GLD rally above $318 (see chart for reasoning). Recommended GLD Calls - Premium Service A GLD rally above $318-320 bodes well for the EW structure set out on the GLD chart above. That makes the Oct $325 a potential 5-bagger with ample time to get there. Active Option Trades PRO Service Premium Service
