Friday, 9 November 2012

TVIX, UVXY - ready to (briefly) explode

With the main indexes again showing some considerable weakness this Friday afternoon, the two main VIX trading instruments are still poised to explode higher. Both TVIX and UVXY are comfortably holding above their recent baby bull flags, and look set to jump higher early next week.

TVIX, daily

UVXY, daily

VIX, weekly


My general outlook for the market is to hit sp'1345/40 within the next few trading days. That should in theory kick the VIX to at least 20/21, possibly 24/26 on a brief spike. Certainly, the VIX is bizarrely low, and a brief spike higher seems very likely.

A VIX around 21 should equate to at least 15% on both TVIX/UVXY. A mid 20s VIX, would probably see TVIX/UVXY briefly surge as much as 35/45%.

Broader outlook

So, I'm seeking a brief market decline to the sp'1340s, but then a strong surge to 1400. It would certainly be pretty disastrous for TVIX/UVXY holders to ride out that kind of 50/60pt bounce.

As ever, the 2x leveraged VIX instruments are very much for short term holds only. That much, I think just about everyone can agree on, not least when you look at a chart covering the last 3-6 months.

One anomaly just yesterday was the VIX which closed red, despite the indexes closing lower by 1%. I'm still not sure what to make of that, but regardless, the underlying VIX weekly cycle is somewhat to the upside.