Today’s trade: Direxion Daily Small Cap Bear 3X ETF (TZA)
The set-up: The last relief rally has run out of steam on the Russell 2000, and the index – as measured by the iShares Russell 2000 ETF ( IWM) — is having a hard time making a new high. When this happens and the IWM consolidates at a certain level, the next leg is usually lower.
The Russell is the weakest of the three big indexes I follow (the S&P and the Nasdaq being the others); if the market is going lower, the IWM is going to lead the way.
The play: The Direxion Daily Small Cap Bear 3X ETF, my go-to-trade when I think the Russell (and the IWM) are headed down.
How I’m playing it: I bought TZA on Monday at $16.28, and I think there is about $1 per share upside on it. If it goes down, I will add to that position down to $15.90 and would stop out under $15.75, but I expect it to move in my favor. The 200-hour moving average – something I trade against a lot – is $17.20, and I see that as the main resistance point; I’ll want to get out a little bit under that, so about $1 from where I made my purchase.
Note: I also have puts on the IWM, playing the decline I see coming that way as well.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, primarily using leveraged ETFs. At the time this was published on RagingBull.com, he held shares of TZA that he had purchased on Monday, June 26 and was planning to trade them as described in the article. He also holds various options positions and is net short IWM.