UVXY Update: entering the potential danger zone.

Please review my recent post on UVXY which I called a "defining moment" for the shares.  The model there is reproduced below.




As is clear now from the updated chart below, my model proved to be correct in calling that pullback/gap fill a wave 2 bottom.  The subsequent rise was quite dramatic in terms of price rise per unit time (wave 3 in the direction of trend is usually thus).  My primary model is that wave 5 is now playing out and that it could be the same length as wave 1 which would imply a peak of $32.50 before falling back a-b-c.  That peak would be wave 1 of a larger degree, let's call it red1.  Thus the fall back to the prior 4th would be red 2.   Other counts are possible because of a few strange moves like the 5 waves down from 1 to 2, etc.  For example, the current wave could have begun on Wed and the waves since could just be the 5 sub waves of wave 3.
       Note: I avoid the use of the commonly accepted EW degrees like cycle, intermediate, minute, etc. simply because they are too confusing for most people and also because they are more important for very big picture thinking.  This is not terribly useful to me since my time horizon is short for these fast moving fireball leveraged ETFs.  What does matter is the immediate nesting and so I think colors and sizes of labels help me see (and more importantly, internalize) what I need to know.  Also, I make only feeble attempts to ensure consistency of color choice between related charts simply because it is more unpaid work.   Apologies to EW purists who might see this as a violation of their religious standards...).

So in any case, after red 2 we should expect to see a massive move up into red 3 shown by the red model.  This is currently my primary model.  But it is difficult to tell 3rds from Cs and so the blue model is also possible at this point.  We simply do not have enough data yet to rule it out.

On the larger chart we can see that we have entered a place where I am always on the lookout for a trap which is a potential 3 wave movement to the level of the prior 4th.  The final consideration I want to offer for the coming days of trading is this: if this is going to turn out to be a 5 wave motive move up, watch out for the 2nd wave pullback which tends to be a deep vee.  For example, this could peak and then pull all the way back to $20 as part of a 2nd wave a-b-c move.  That would be of course a strong buy signal for the coming third wave but you certainly would not want to eat all of that pullback.

Use stops as appropriate to your risk level and trading style.