Bear ETFs Breakout

Both of these bear-market ETFs show a breakout from a flag-formation. Based on the adage "the flag flies at half-mast," targets for these two are attractive, indeed. Point & Figure targets for the two are ERY: 39.5 and TZA 38.0.

ERY: Bullish on a Bearish ETF

ERY has approached a resistance level (blue line) and today should tell whether it will break through and continue following the upward channel (black lines). Point & Figure target for oil ($WTIC) shows a target in the low fifties, so ERY should go higher. The question is when. A backing off from the resistance level would be an entry opportunity. I blow through the resistance level would also. Not a bad choice. The resistance level will thereafter provide a good point for stop loss.

The left-hand graph is daily; the right, hourly. The resistance level on the hourly is the more accurate. Without much imagination one should e able to spot the reverse head-and-shoulders pattern on the daily. Its target calculates as 34.

The major threat to this scenario is presented in the Times story Sunday on Israel being green-lighted on striking Iran's nuclear facilities. That happening would dump the market and sky-rocket oil, especially if the attack included Iran's oil facilities to inhibit financial recovery of their nuclear ambitions--not to mention financing terrorist interests in the region--and worldwide. Iran's latest election scams may cost them in ways they have yet to imagine--and adds new meaning to "meddling."

Pre-market Position

The Standard & Poor's 500 Large-Cap Index (SPX) nears the top of its channel, indicating an end to pause days. It may take a half-day excursion up to its longer-term, upper, darker channel line, but then the shorter-term channel runs out of room within the longer-term channel. SPX then should turn down. It is now below its 50-day and 200-day moving averages, and it would appear entering the long-awaited 10-15% correction.

This indicates the bear-market 3X ETFs (FAZ, TZA, ERY) should resume running, and the solars, who have enjoyed this pause, to correct some more. Many of the solars are near their bottom channel line, and, market permitting, would turn upward. LDK seems to be leading the others by a day, so is shown here.

The left-hand, daily graph shows LDK approaching its lower channel boundary, thus good to rise, again, market permitting. The right-hand, hourly graph shows a breakout, with the stock, again, at a low position in the shorter-term channel. If the market meanders sideways for the half-day left before its short-term channel runs out of room within the longer-term channel, LDK may rise, but when the market turns down in earnest, it will, too.

With the market in downtrend and near its upper channel, it is looking for excuse to turn down. It will find it. Be careful out there.
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Somewhere around 11:20, the market overcame the old longer-term trend line, and went higher in the short-term channel. So much for predictions.... [sheepish grin]

Pause Day 2

As far as I know, there is no rule against two pause days in a row. If so, we broke it today. Market rose early then reversed when the Fed's Open Market Committee broke up. Guess they said what was expected, but disappointed what was hoped for. Anyway, markets are meandering, not knowing which way they want to go. Buyers and sellers are waiting. Traders longer than day traders don't much care which way the markets go, as long as they go. So we wait.

Pause Day

As predicted, after yesterday's market drop, today would be a pause day, or a day with little if any movement. It was. Indices were mixed, with Russell 2000 ($RUT.X) down.

Since the Russell 2000 continued down, TZA mirrored and amplified that move, closing slightly up. A rise of over 2% is nice for a pause day. Note, the left-hand daily graph, TZA continues to walk the upper Bollinger band, indicating the trend upward remains in force. The right-hand TZA 60-minute graph has had the latest channels redrawn to include today's movement. Today's drift sideways has left it near the lower channel line, close to an entry point.

ERY, in the left-hand daily graph, also continues to walk the upper Bollinger band, plus paused today on its 50-day moving average. On the right-hand 60-minute graph, the redrawn channel is parallel and overlaps the previous channel. The pause of today and much of yesterday is becoming a Bollinger squeeze. It is also nearing the lower channel line, but the On Balance Volume is not showing any enthusiasm. ERY moves more from the decrease in oil prices rather than the general market indices, so that may pause another day or three before moving.

FAZ in the right-hand daily graph also continues walking the upper Bollinger band, indicating an intact trend upwards. FAZ's 50-day moving average is above, currently t 6.25, and an attractor, if one allows fractal terms. The right-hand 60-minute graph has had the latest channel redrawn to includes today's pause, and shows price challenged the 38% Fibonacci retracement level twice. It held. FAZ has closed directly on the lower channel line, indicating we will know immediately in tomorrow's market whether FAZ will resume upward movement or breakdown. FAZ also has a resistance level at 5.37 which contained the upper movement after testing the 38% level.

Ten Percenters

Hunting ten "percenters," or stocks that rise ten percent in a day, is fun, and often lucrative. Rare are the days when one gets 3 for 3.

The obvious one is ERY, written up this morning before pre-market. It broke out Friday and carried through this morning. It reached its 50-day moving average and tarried there for the balance of the day. Reaching its target of 24.50 was thought to take three days, but it nearly achieved it today.

TZA reflected and amplified a drop of nearly 4% in the Russell 2000. The market has entered into the long-expected first bull-market correction. TZA gapped outside its previous channel on opening, and finished the day on a second leg up. Note it is still within its new channel. Its 50-day moving average is at 27.42, within reach of another day like today.

FAZ was the late star of the day, after closing well down in the channel Friday, then popping out this morning, and running some more in the afternoon. Its 50-day moving average is at 6.33, within another day's effort. FAZ also closed in mid-channel, indicating a desire to continue.

Tomorrow may be a pause day in the market's decline. Many of the indices are closing at their 200-day and 50-day moving averages simultaneously. These three will reflect that pause. Then, again, the indices may not pause, but accelerate, which will reflect in these.

ERY Up, ERX Down

ERY broke out of it correction Friday, and may wish to continue its climb today. It approaches to lower channel line, so an answer should come early. Note, the Bollinger squeeze and head fake annotated on the graph. Note, too, On Balance Volume and Stochastics also confirm the assessment.

ERX confirms the movement of ERY. The possible alternative assessment of this movement is that we have merely completed the A and B legs of an ABC correction, and the C leg will now follow taking ERY down again, perhaps actually reaching the 38% retracement level missed during the first attempt. If that is the case, we should violate the lower channel line (black) and the trendline (blue), and do so early.

Of course, a third possibility is that this correction could simply continue sideways. No one promised simple. Fortunately, prediction is not required; one simply need react to whichever occurs and place a nearby stop loss should the trade go adverse. It is playing the odds, not fate certain.

One aspects of ERY continuing upwards, is that the correction of the last Wednesday and Thursday forms a flag, which Friday was confirmed with a breakout. The question now is whether the upper boundary of the flag will be retested or not. If this is the correct interpretation, the price target should be approximate 24.50 and should be reached this week.

ERY Running

ERY has been on a run, up from 16 to 20 areas in four days. Further, the two ETFs channel nicely, making them easy to trade. ERY appears to be coming out of a Bollinger squeeze, per the daily graph (upper left corner). It is low in teh 60-minute channel, and appears to be breaking its trendline on the 3-minute graph.

ERX, the bull mirror of ERY, is dropping out of a Bolliner squeeze, and is now poised for another leg down. It is at the higher channel line of the 60-minute graph, and shows a breaking of the trendline on the 3-minute graph.

These are the daytrading movements. If swing trading, it would be better to await a change of trend from the one now moving for four days. This will be evident on the 60-minute graph, with a breakout of the current channel.