It's of course a risky trade, being a 3x leveraged fund, and I'm buying in the midst of a rally. In one month, the Dow has gone from 6600 up to 8000, and FAZ has dropped from over $100 to it's current value of around $16. The trade is a gamble, but I'm betting that after a month of large gains, the markets will pullback here, especially since the Dow has now reached the key resistance level of 8000. It could fly through it -- anything's possible -- but I think it's much more likely to get stuck around the 8000 range or bounce off it. It's been a pretty large rally and the economic news is still pretty dismal. Earnings season is now here (roughly from Tuesday to 6 weeks later), and the news should be bad.
Take a look at the chart below to see the Dow 8000 and 9000 resistance/support levels:
I think one of the riskier things about this trade is that I'm buying pretty early, without any confirmation of a change in direction of the markets. I probably should have waited to see if the DOW blows through 8000 or starts to drop. Instead, I'm trying to time the top perfectly, which usually doesn't work out too well :)
I don't want to set a stop on this trade, because the 3x ETFs are so volatile it would probably get hit and I would lose money now matter which way the trade eventually goes. I'm pretty confident DOW won't go above 8400 right now. I'm planning to sell in 2-3 days.
3 comments:
Chris, what are your thoughts on the potential for UYG & FAS in the coming week? Most of the banks are to issue earning reports next week, so if they are favourable, then expect UYG & FAS to jump.
Do you think they will?
I think the earnings reports won't be good. I don't follow analyst expectations though, so if the analysts are predicting really-really bad, and the reports are only "somewhat" bad, then I guess that would mean the bad reports are actually relatively favourable :)
Anyway, I'm hoping that people will be nervous enough about the earnings that there will be some more sell-off this week and early next week. Then I can hopefully sell off my FAZ (or before then) at a nice profit and not hold anything when most the earnings come out, because who knows which way things will go.
Ha! well so much for that plan! Banks are skyrocketing today :)
I didn't realize Wells Fargo had an earning release today... I thought the banks were all next week.
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