Clicky

IWM Backtest Likely the Final Golden Shorting Opp

Nice failure on the backtest of this 60-minute wedge so far which, in IMO, will likely prove to be the last golden shorting opp on the  IWM/TNA official short trade with the market likely to start moving sharply lower from here. Again, additional price targets will likely be added to this trade although the suggested stop remains any move above 121.65 which is very close to current levels & just basis points from today's high so far. For those positioning for what could become a longer-term swing trade (beyond the two current near-term official targets), you might want to allow for a wider stop.

IWM 60-minute Aug 4th

IWM 60-minute Aug 4th

0
Aug 4, 2016 10:06am|Categories: Completed Trades - Short, Equity Market Analysis|Tags: , |15 Comments

15 Comments

  1. lee1 August 4, 2016 10:16 am at 10:16 am

    Getting tired of all these wedges and what not and nothing ever really happening on the downside. Hope the market does not go to 2200 from here.

    0

    • snp August 4, 2016 1:08 pm at 1:08 pm

      wedges are good for splitting firewood.

      0

      • lee1 August 4, 2016 1:10 pm at 1:10 pm

        lol well maybe this time it will split the market open finally, after much build up and fanfare

        0

  2. rsotc August 4, 2016 10:17 am at 10:17 am

    Should the IWM short trade based off the 60-minute chart begin to gain some traction, I will likely extend the price targets. 115.25 would be my min. swing target with a current final target of 108.70 (unadjusted for optimal fill & still unofficial targets as of now). First things first & that would be to see a break below 114.10 on QQQ, 215.30 on SPY & a move below the bottom of the first support zone (118.54) on IWM as a solid sell signal will come on a break below those support levels.

    0

    • lee1 August 4, 2016 11:44 am at 11:44 am

      Market running higher. Wow that was a surprise.

      0

  3. Eric K August 4, 2016 2:01 pm at 2:01 pm

    Wow Randy, IB is out of shares of TNA to short! Is that you moving the short market?

    0

    • rsotc August 4, 2016 2:48 pm at 2:48 pm

      No, maybe Lee1 finally joined the Dark Side & decided to short all of the available shares of TNA.. lol. Actually, I noticed quite a few of the 3x bullish ETFs were dark green barred in TWS at IB today: FAS (was earlier, light green now–ok to short), LABU, NUGT and TNA. Probably a combination of longs closing their positions (which means fewer shares in margin accts available for IB to lend out to short) as well as their preferred clients (institutional traders) requesting the shares to short, in which case I’d image IB would call them in from the little guy (us) to lend to their preferred clients if that shortage of shares continues.

      0

  4. astoria26 August 4, 2016 3:48 pm at 3:48 pm

    @rsotc Hi Randy, I’ve never shorted before and was looking into how to short TNA. It seems there’s huge risk to shorting these leveraged ETFs, not only with the 2-3% variable interest rate than can change and go as high as 20% during the course of the loan, but also you can be forced to liquidate at a really bad price if the value goes up and the person you’re borrowing the shares from decide to sell. I know you’ve always advocated shorting ETFs as a better proxy for going long (short DWTI if you wish to go long oil/UWTI, for example) b/c it can soak up all the decay and turn a greater profit – but is it really worth all this elevated risk? You’re also able to invest less money (due to 90-100% margin requirements) than if you went long. I was really interested in shorting, but now in reality I’m not so sure.

    Can you please help share your insights on why you prefer to short? Have you ever been forced to cover b/c the shares you borrowed got sold? Thanks so much!

    0

    • astoria26 August 4, 2016 4:03 pm at 4:03 pm

      I meant to say 125% margin requirement, not 90-100%! Thx.

      0

    • rsotc August 8, 2016 11:46 am at 11:46 am

      @astoria26 – Just catching up on a long list of mentions & replies in my notifications panel & saw this one from you. While I can’t speak to the likelihood of any one broker charging a 20% interest rate for lending HTB (hard-to-borrow) shares in a near-zero interest rate environment, I doubt that would be the case, at least not from my primary broker, Interactive Brokers. As far as the typical 2-3% rate, that is an annual rate which is so low for a typical swing trade usually lasting no more than a few months (hence, 1/4 to 1/3rd of that annual rate actually paid in interest) that it pales in comparison to not just the profit potential for a swing short trade on a leveraged ETF, but is almost certainly far below the annualized rate of the decay alone, irrespective of any price moves in the underlying sector. As such, the interest to borrow those shares is typically not an issue for me.

      As far as the potential for the shares to be called in, I don’t believe that you’re borrowing the shares from an actual specific person, rather from a pool of all of the shares that broker has available to lend out from their customers that are long those shares, plus a broker can easily borrow shares from the street (other brokers) to lend to their own clients (that is usually where the higher loan rates apply). While the potential of having any shares that one is short being called in is always a possibility, I can tell you from experience that it is very rare, at least in all the years that I’ve traded with Interactive Brokers, who has consistently had the best availability of HTB shares of any broker out there, from both my personal experience as well as other traders that I have talked to. With that being said, using another broker beside IB, especially one that doesn’t consistently have availability of HTB shares (which many of the 3x ETFs fall under) then you run a much higher chance of a short position on a leveraged ETF being called in early & you probably want to avoid shorting the 3x etfs altogether.

      On your last point, yes, a broker will adjust the margin requirement of a 3x ETF down by a third to adjust for the customer’s increased risk exposure but that is a complete wash, as you should only be shorting 1/3rd a position size of, say NUGT if shorting the miners, as you would if you were to short GDX. i.e.- a $30k short on GDX offers the same (less decay) gain or loss potential as a $10k short on NUGT.

      0

      • astoria26 August 8, 2016 2:50 pm at 2:50 pm

        @rsotc I’ve never heard of Interactive Brokers before, but I’ll definitely check them out. I currently have accounts with both Fidelity and Schwab, do you have any experience with how good they might be with HTB shares availability? For example, when I go to Fidelity it shows me there’s 52,897 Shares of LABU available to short, at an interest rate of 3.5%. Does IB show similar stats? Thx!

        0

        • rsotc August 9, 2016 9:00 am at 9:00 am

          Can’t comment on Schwab but I’ve had (and still have) accounts at Fidelity for decades & can say that their availability of shares to short on all but the most liquid stocks is not very good, although I’ve noticed they’ve gotten a little better on the 3x ETFs in the last year or two, most likely due to their growth in popularity (i.e.- total number of shares issued, which means there are more shares around to lend). They still don’t come close to IB in availability of HTB shares.

          0

  5. Joez August 4, 2016 4:56 pm at 4:56 pm

    Hey pal whats your spy targets on a break?

    0

    • rsotc August 8, 2016 11:54 am at 11:54 am

      @Joez My minimum target on SPY, should both QQQ & SPY breakdown soon, would be 212.70ish with a preferred target of 210.85ish although such a move down to either of those levels will firm up some of the recent bearish developments on the daily time frame & quite likely open the door to a much larger move down. Each of the horizontal lines on those 60-minute charts below represents a support level in which a reaction (bounce and/or consolidation) is likely. Should the market (QQQ, SPY & IWM) break down soon, I will try to refine the targets and possibly add additional targets, depending on how the charts develop.

      0

Comments are closed.