Extreme Reward but High Risk for Leveraged Inverse Crude Oil DWTI and DTO

Aug 19, 2015: 11:32 AM CST

How would you like to buy a stock – or ETF – that tripled in value in less than two months?

Sounds impossible?  It’s not – that’s exactly what triple leveraged inverse fund DWTI did recently.

Shares of the ETN tripled from the $60.00 per share level to the breakout high above $180.00 today.

Let’s take a look at this monumental movement but also highlight the huge risk inherent in any double or triple ETF.

Here’s DWTI, the Triple Inverse (3x Short) Crude Oil ETN:

If oil moves up 1% in a day, the DWTI ETN (ETF) is calculated and balanced to return as close to -3% as possible.

And if oil moves down 1% in a day, the ETN “should” return close to a 3% price gain.

Because commodity prices tend to trend or move in one direction for a sustained period of time, this can quickly add up for those holding positions.

The reward can be large, as seen from December into January with a powerful movement up from $50.00 to $200 (quadrupling in two months) or the March 2015 movement from $100 to $180 in about two weeks.

That’s an extreme, powerful, and potentially large return for those who bought this fund into the downswing in the price of Crude Oil.

Of course, in the real world, you’re not going to buy the bottom and sell the high.

There’s another hidden reality to this golden profit machine and it’s the immense drop or collapse in price during even a modest (small) rally in the price of Crude Oil.

The lower chart plots $WTIC – Crude Oil itself – with two yellow highlighted periods.

At the time when Crude Oil “only” moved up from the $45.00 level toward $50.00 per barrel, the price DWTI collapsed from $200 to $100, losing half its value in one week.

With great reward comes immense risk. Continue Reading…

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Weak Stock WalMart WMT Breaks to New Lows in Downtrend

Aug 19, 2015: 10:23 AM CST

Wal-Mart (WMT) continues to appear on our stock scans as a “Weak Stock Getting Weaker,” and shares gapped and broke to a new swing low in an ongoing downtrend.

Let’s update our chart and note the breakdown – and where price could be headed:

First, compare Wal-Mart’s ongoing downtrend and “Weak Getting Weaker” status with that of Home Depot (HD) which I charted yesterday as a “Strong Stock Getting Stronger” with its own breakout to a new 52-week high.

I’m underscoring for you the importance of a trend and why it’s superior to trade WITH an ongoing trend as opposed to against it with reversal or ‘fade’ trades (fighting a trend).

Also, take a look at a July 1st stock scan post where Wal-Mart was identified then as a “Weak Stock Getting Weaker.”

Beyond that, review June 3rd’s “Charting Three Weak Stocks in the Dow Right Now” update.

Main idea:  Stocks in a downtrend – weak stocks – tend to get weaker, NOT stronger.

We see three specific support breakdowns in Wal-Mart stock highlighted above.

Note the little support shelves – with positive momentum divergences – and the resulting breakdown as the strong downtrend continued for shares.

We’re seeing not just another breakdown, but a gap scenario (strong impulse) on surging volume.

Odds favor a continuation lower in this “Weak Stock Getting Weaker” component of the Dow Jones Index.

Here’s the Weekly Chart for level planning and targeting: Continue Reading…

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Strong Trending Home Depot HD Surges to New Highs

Aug 18, 2015: 12:30 PM CST

We love the concept of “Strong Stocks Getting Stronger,” and Home Depot (HD) continues to trend powerfully higher, extending its bull market with a fresh new breakout today.

Let’s chart this stock and discover what opportunities may be present here for us:

First, we’ll start with a daily chart to highlight the 2015 uptrend, “flag” pattern (or “Rounded Arc”), and the recent breakout to all-time highs.

Price surged at the beginning of 2015, consolidated through the middle part, and recently broke out higher from July to present.

Today’s bullish gap on higher volume confirms the uptrend and suggests even higher prices are perhaps likely yet to come as the uptrend continues.

Closely monitor the $122 gap-up level here, the $120 resistance level prior to the gap, and the session high of $124.

We can pull back the perspective to highlight the weekly chart to underscore the strength of the trend: Continue Reading…

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A Key Make or Break Level Here for Russell 2000 and IWM

Aug 18, 2015: 10:11 AM CST

The Russell 2000 Small Cap Index has shown relative weakness to the S&P 500, but the index – and the IWM ETF – are at key pivot levels traders should know.

Let’s update our chart and note the bull/bear pivot point level for our trading plans:

The chart above shows the Russell 2000 Index on the Daily Chart with our key level highlighted.

In simplest terms, the 1,225 level is our key bull/bear pivot zone going forward.

Note the overlap of the falling 20 day EMA with the rising 200 day SMA (moving averages).

This is providing an upper wall of resistance for price; however, this does not mean buyers can’t break through the ceiling.

Thus we’ll reference 1,225 as our key pivot level where we’ll once again trade bearishly “down away from” this level but be prepared to trade a short-squeeze fueled breakout “up above” 1,225 toward 1,230.

Note that a continued breakout higher sets in motion a play toward the 1,240 target as highlighted.

We can see the same levels operating on the popular ETF symbol IWM (Russell 2000): Continue Reading…

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August 17 Range Reversal Update and Trending Stock Scan

Aug 17, 2015: 2:13 PM CST

The broader consolidation continued as price reversed strongly off support this morning.

What levels are we focusing on now? Let’s see!

First, be sure to view Monday’s “Thrilling, Non-Stop, Exciting Trading Range of 2015” for context.

We have an update THIS Monday of more of the same:  “Yes, We’re STILL In the Trading Range.

A “stab” into the 2,080 support level resulted in a huge bullish buy-impulse and short-squeeze up away from this support level.

PRice rallied up into the 2,095 midpoint and then exceeded that with the current rally – on divergences – into the 2,100 Round Number Reference.

We’ll be carefully focusing all our attention on the 2,100 pivot and will continue trading bullishly above it within the range… neutral between 2,095 and 2,100… and bearish under 2,095 for simple level planning.

Follow along with members for more precise daily planning, analysis, and education.

Continue Reading…

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