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ERY XLE Trade Idea

Although still inside this falling wedge pattern, a long entry/position ERY (3x energy sector bearish ETF) will be added as an official short trade idea here at 20.81 with a suggested stop on a 60-minute close below 19.55, targets shown on chart. To be clear, one would go long ERY to short the energy sector, as such this trade is Short Trade idea (Short Swing Trade Setup + Active Trade). While XLE traded right on the upper wedge line so far today, ERY appears to be well inside the wedge. This is simply due to the decay & the reason that I use the 1x ETF for charting purposed & timing entries & exits.

ERY 60-minute March 22nd

ERY 60-minute March 22nd

The green lines on this XLE 60-minute are my actual price targets/support level for the ERY trade, in which the targets have been roughly correlated although subject to revision, depending on where ERY is trading as/if XLE approaches these levels. So far, they've bought the gap up which means that the rising wedge on XLE has not yet broken to the downside, although I have a fairly high degree of confidence that it will based not only where prices are in relation to that wedge (which is also confirmed via bearish divergences) but even more so in the fact that on the daily time frame, XLE is overbought while challenging downtrend line resistance where at least a decent pullback is likely.

XLE 60-minute March 22nd

XLE 60-minute March 22nd

XLE daily March 22nd

XLE daily March 22nd

My preferred proxy and the official vehicle for this trade is ERY as my expectation is that this trade will be relatively unidirectional & a relatively short-term swing trade, probably several days to no more than a couple of weeks. Other options would be to short XLE (no decay from leverage), short ERX(3x) or DIG(2x) long energy etfs, taking advantage of any decay), or go long DUG (2x) short energy ETF. Various leveraged & non-leverage ETFs grouped by sector, index, commodities, etc.. can be found in the ETF center location on the main menu.

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Mar 22, 2016 10:26am|Categories: Completed Trades - Short|Tags: , |3 Comments

3 Comments

  1. schooner March 22, 2016 1:30 pm at 1:30 pm

    I would also note that the 200 day MA is not far above current price on XLE. The 200 is currently at 65, and that MA often acts as a magnet — I would not be that surprised if we get one more push up in the wedge. That’s only about 2.5% on the XLE but obviously 3x that on ERY — potentially more than some may want to give it. Personally, I like Shambo’s strategy of placing his stop at the HOD on XLE and looking to re-enter if stopped out, but we all have our own styles.

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  2. Gaucho April 10, 2016 11:27 pm at 11:27 pm

    Hi Randy,
    ERY is moving down after an initial attempt to reach the T1 (24.90) without success.
    Could this down movement reach the stop (19.55)?
    Regads

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  3. rsotc April 11, 2016 2:26 pm at 2:26 pm

    Gaucho- That is certainly possible. I had anticipated a likely bounce in crude once my downside target was hit recently & at the time, I had expected weakness in the equity markets, which has instead, help up. I was thinking that expected (but unrealized) weakness in the broad market would translate into a continued move lower in the energy stocks, despite any reaction/bounce in crude off that target level. That wasn’t the case & while one could certainly pull the plug on the ERY trade, I haven’t seen enough evidence in the charts to close the trade early, at least not just let. The original official stops remain in place although those are only suggested stops so as always, do what you are most comfortable with.

    I will add that although ERY is playing out more slowly than I had anticipated, I still have XLE at or just below that key downtrend line resistance on the daily chart so as of now, the case for a deeper pullback in the energy stocks is still alive although a solid break and/or close above that TL on the XLE daily chart will severely dampen the near-term bearish outlook.

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