UVXY: Timing the Spike
Since the market seems to be making considerably newer highs weekly, investors are starting to look into options for hedging their current positions and UVXY seems to be the place many eyes have landed. Though this volatility index is a depreciating asset purchasing shares of UVXY in a time when a correction may be imminent can lead to potentially exponential gains once said correction happens.
Though this is an extremely risky strategy, I believe that paying and attention to the MMTW (Percent of stocks above the 20-period moving average) and MMTH (Percent of stocks above the 200-period moving average) indexes can help provide traders and investors with insight as to when the appropriate time to hedge with UVXY are present.
As you can see on the chart, A spike in UVXY is almost always consistent with the crossing down of the MMTW below the 50% line - The strength of the move can be observed by also watching the MMTH index and paying attention to it's 50% line as well. If one has a larger risk appetite, purchasing UVXY when the MMTW crosses below the 60% point could place the trader in a good position to profit in the short term trade.
Since the strategy of shorting volatility is is a pretty widely known and a profitable one, most of these trades have the lifespan of a mayfly and should be closed quickly unless confirmation of the marketwide downward trend is seen on the MMTH index. If the direction of the market is not confirmed or the UVXY rally is rejected, taking the countertrade (short UVXY) could also see nice returns if held for a significant period of time (see: depreciating asset)
These are not trading strategies for the faint of heart so best to plan accordingly based on risk appetite. Marking this once as Neutral since it can be approached from both sides but I may very well be longing UVXY once the 50% line is tested
Though this is an extremely risky strategy, I believe that paying and attention to the MMTW (Percent of stocks above the 20-period moving average) and MMTH (Percent of stocks above the 200-period moving average) indexes can help provide traders and investors with insight as to when the appropriate time to hedge with UVXY are present.
As you can see on the chart, A spike in UVXY is almost always consistent with the crossing down of the MMTW below the 50% line - The strength of the move can be observed by also watching the MMTH index and paying attention to it's 50% line as well. If one has a larger risk appetite, purchasing UVXY when the MMTW crosses below the 60% point could place the trader in a good position to profit in the short term trade.
Since the strategy of shorting volatility is is a pretty widely known and a profitable one, most of these trades have the lifespan of a mayfly and should be closed quickly unless confirmation of the marketwide downward trend is seen on the MMTH index. If the direction of the market is not confirmed or the UVXY rally is rejected, taking the countertrade (short UVXY) could also see nice returns if held for a significant period of time (see: depreciating asset)
These are not trading strategies for the faint of heart so best to plan accordingly based on risk appetite. Marking this once as Neutral since it can be approached from both sides but I may very well be longing UVXY once the 50% line is tested
Comment:
MMTW on watch:
Comment:
nice spikes the last two days that were sold off relatively quickly but still slow enough to exit position or enter quick countertrade. MMTW has officially crossed 50% but MMTH still hovering at ~85% so strong spike not yet confirmed but smaller daily spikes that are quickly sold off may continue while MMTW is in this range
