Follow the Footsteps

2020-09-09 | TG Watkins

The trading days surrounding the Labor Day weekend saw the market sell off hard. This was not a surprise as we had been seeing indications that the market was getting very extended. One way that I can detect when the market is ripe for a turn is by watching the UVXY. This is a leveraged ETF of volatility and can be a tool for hedging. The big players know about it and use it often, which I am aware of because UVXY was rising as the SPY rose. Below is a screenshot showing that the UVXY started moving up in earnest on 8/27/20. Note the volume as it has been outpacing volume from the CoVid decline. This is definitely not a normal thing and is a big warning sign.

UVXY

Now that the drop is behind us, I am searching for clues as to what may come next. My opinion, based on what I am seeing, is that the next move down could be large and intense. I will show you why via charts, but let’s also think about the theme:

The market has had a mind boggling stellar move up after the COVID crash. Now we are in September which is a seasonally poor month. And then we have the huge uncertainty of the Presidential election in November. My view is that the big players are starting to cash in their profits and then lay low going into the election. Part of that may be in the form of buying volatility since we know that is likely to rise with the apprehension of the election and probable lack of market trend. Therefore I expect September to be a sell-off month and October to be mostly chop.

Next, I will show you the SQQQ, which is the leveraged inverse ETF of the QQQ. What I want to call your attention to is the volume that started coming in on 8/19/20, sustained, and exploded on this first move down of the market before Labor Day. All of this volume far exceeds any volume from the COVID decline. The Labor Day top was not a surprise and with the amount of volume here it makes me think that it isn’t over.

SQQQ

Here is the view of the SPXS which is the inverse of the SPY. Big volume and it seems to be sustaining.

SPXS

These are just footsteps, so we still need to obey our trading rules and not just buy or sell based on volume alone. The SPY and the QQQ are still above (barely) their Daily 50 SMA so I am not ready to go short in a big way yet. My subscribers and I are waiting for a bounce and then we will consider it. It will be very interesting to watch the volume footsteps for clues in these various ETF’s as I expect the daily average volume to stay elevated. I am sure the coming months won’t be boring, but they may be difficult. Keep your head on a swivel, stick to your rules, and play what is in front of you.