UVXY - Simple doesn't mean it's easy.

Even expecting a pullback in the markets last week, didn't make UVXY an easy trade.

Simple plans and solutions are rarely easy to come up with and implement. After 6 months of success trading UVXY according to the simple strategy laid out in December, it’s still not easy. This past week I was expecting the market to pull back after a big +7.6% run up to close Friday, June 24. Monday or Tuesday was most likely, and even though it did just that, it was difficult not to second guess oneself. The saving grace was to not second guess the strategy which has been working consistently for the past 6 months.

On Friday, June 24, I took the option to buy UVXY as it moved up late with the markets also moving up. On Monday, markets opened higher and fell sharply for the first 30 minutes, then held. UVXY moved up for the first 20 minutes and fell sharply so I sold, following the rules, but was expecting a reversal.

All Monday, I kept watching for the markets to break lower. You could have tried buying UVXY off the floor around 13.80, but that made for a tiring day, and you start thinking that perhaps volatility is going to continue dropping and the markets will rise. On Tuesday, you might have less conviction to buy UVXY early if you tired yourself out the day before. Simply following the strategy, buying a full position on the early move and sticking with it all day, kept you in perfectly for the full run. I sold early on Wednesday when it dropped hard, re-bought as it held, then sold again on the sharp drop at 1:30. You might have just held early and sold at 1:30.

Normally you wouldn’t have re-bought UVXY late on Wednesday, but the drop was significant and the move up in the markets was pretty small and they were only holding the bottom of Tuesday’s range, still looking ripe for a continued fall. Re-buying worked out well, but even if you hadn’t, you still would have bought on Thursday early. Selling out and staying out an hour later was difficult, emotionally, since you’re expecting a bigger fall in the markets.

Friday had you guessing again with a hard move up in the markets for the first 30 minutes, then a hard reversal that lasted just over 30 minutes. If you weren’t dizzy by then and completely second guessing everything, then you’re much better than me. On Tuesday, the markets broke through the floor held on Monday, so would they now break through Thursday’s floor on Friday? And that’s the key. When it moved up from 3750 and then held 3765, stay out of UVXY since it’s falling sharply with brief pauses and fake reversals. Don’t get sucked into re-buying UVXY with your biased belief that the markets are likely to fall further.

Now we have a support line to watch and there’s reason to think the pullback is finished (for now) and the markets will push higher (for now). The daily market charts are still in a down trend, but the above chart gives some hope that the bottom is in. Regardless of what you think will happen next, putting that aside and simply following the strategy for trading UVXY will continue to produce the best results.

I’d also like to add that Avi Gilburt has finally admitted to being wrong in his prediction for 2022. “While I correctly warned that “in early 2022, we will see the largest pullback in the market that we have seen since the bottom struck in March of 2020,” I clearly did not expect the market to drop this deeply. To that extent, this is likely the biggest miss in a primary prognostication that I have experienced since I opened ElliottWaveTrader almost 11 years ago. As I have said, I wish I could be right all the time, but I am human and will never be right 100% of the time. Those that have read my analysis through the years know quite well of our long-term accuracy, but this was clearly a miss.” (Sentiment Speaks: An Update On Many Segments Of The Market)

While Avi’s new lack of bullishness might support your own thinking that the markets are headed lower, “Legend Michael Burry Warns of ‘Disinflation’ and Soaring Growth Stocks”. I would love growth stocks to soar and VIX to fall back under 20 and UVXY to fall to single digits. Either way, stick to the simple strategy for UVXY, even if it’s not always easy to do so.