Buying VXX

 

Yesterday's U.S. Federal Reserve announcement brought the volatility we’d expected, especially in gold and oil which was much to our advantage.

While equities generally went a bit higher Wednesday it’s a big red flag that Goldman Sachs (GS), which is a favored market proxy of ours, dropped almost half a percent and remains far below its 200-day moving average and also below its 200-week moving average.  That's bearish.

Also bearish is that bullish sentiment is now at the same level as it was at the November high.  At that time the market had staged a 25-day rally.  The current rally has lasted 23 days, marking another parallel.  After the November high the DJIA dropped more than 2500 points (roughly 14%) over the course of 10 weeks that followed. 

Fed announcement days have often marked the end of a rally for stocks and it could certainly happen again with this week's Fed announcement, thus we're going long VXX without a stop level in mind for the time being.

Here's how we see the DJIA, showing probable resistance in black.  It looks to be a long way down once the index breaks below the red line.

 

 

 

 

 



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