This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

A Perfect Trade for Increased Volatility: TVIX

DELAFIELD, Wis. (Stockpickr) -- U.S. equities are under selling pressure today, with the Dow Jones off by more than 50 points and the S&P 500 down by 13 points. The tech-heavy Nasdaq is taking the brunt of the selling, plunging by a whopping 70 points.

>>5 Toxic Stocks to Sell Now

It's been a long time since the market has had a healthy correction. When you look at the chart for the SPDR S&P 500 ETF Trust (SPY), you'll notice that we now have a failed breakout from the recent test of the SPY's highs. The selling for stocks could easily pick up the pace to the downside if the SPY takes out its 50-day moving average of $182.59 a share with high volume soon.

The PowerShares QQQ (QQQ) which represents a basket of the biggest Nasdaq stocks, has also failed to take out its recent highs and is now breaking below its 50-day moving average of $88.19 a share with heavy downside volume. The iShares Russell 2000 (IWM), a popular ETF to follow the small-cap market, has also failed to take out its recent highs and is breaking down here. The IWM is quickly approaching its 50-day moving average of $115.45 a share.

Must Read: 5 Stocks Set to Soar on Bullish Earnings

>>5 Stocks Under $10 Set to Soar

Considering that the QQQ has now broken below its 50-day moving average, which is bearish technical price action. The next stop for 50-day breaks could very well be coming for the SPY and the IWM. If that does occur, then we're going to see volatility in the markets pick up dramatically. This could be a good time to look for ways to play an increase in volatility if U.S. equities are finally getting ready for the much-needed correction. This could be a meaningful correction since we haven't had one in a very long time.

If volatility is now getting set to spike dramatically higher, then one trading vehicle that could be a great way to play this is with the VelocityShares Daily 2x VIX (TVIX).

This ETF was designed to provide investors with exposure to one or more maturities of futures contracts on the VIX, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve. The TVIX is a more highly leveraged way to play a spike in volatility, but this by no means is a trading vehicle you invest in for the long-term. This is purely something you use if you think volatility can spike dramatically in the short-term, which could lead to some quick profits. If the markets want to correct in a meaningful way, then you can use the TVIX for a trade since volatility and fear should spike notably in that environment.

It's hard to apply straight technical analysis to leveraged ETFs and especially to VIX-based ETFs. That being said, the chart for the TVIX has shown over the last month and change a bottoming pattern, with shares forming a triple bottom chart pattern at $6.62, $6.95 and $7.05 a share. As long as that bottom holds, then we have a technical situation here that could be setting the TVIX up for a major breakout trade. If that breakout does trigger, then the TVIX has a great chance to spike sharply higher.

>>5 Stocks Ready for Breakouts

Traders should now look for long-biased trades in TVIX as long as its trending above those major support zones at around $7.05 to $6.62 a share and then once it breaks out above some key near-term overhead resistance levels at $8 to $8.68 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 9.04 million shares. If that breakout gets underway soon, then TVIX could easily hit $11 to $12 a share.

Keep in mind that we're going to need some elevated fear to creep back into the markets and all of those major indices must take out their 50-day moving averages in order for volatility to dramatically spike and give the TVIX some momentum to send it significantly higher from current levels. It's key that we get closes below those 50-day moving averages as well, not just intraday breaks. Also, if we get any rebound rallies in equities, look for those rallies to fail at lower highs for potential entry points into the TVIX for the coming correction.

-- Written by Roberto Pedone in Delafield, Wis.


Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned. Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including and You can follow Pedone on Twitter at or @zerosum24.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
IWM $98.04 0.00%
QQQ $98.12 0.00%
SPY $187.95 0.00%
TVIX $10.03 0.00%
AAPL $94.02 0.00%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs