Adapting to change

The shorts have been absolutely run over the last week. A few failed attempts to break the market only made it stronger.

There are many traders who were playing FAZ last month with great success. FAZ and FAS both track the XLF but move 3 times as FASt. I know many were just chomping at the bit for FAZ to drop down to the 35-40 area for another round of fun. The trouble is the XLF is leading this rally. It is only natural to want to go back to the trade that worked so well last time. Not recognizing a change in the market can hurt 3 times harder when wrong in FAZ and FAS.

I am starting to think that looking at a daily chart of these triple levered funds is useless. Other than major price levels of highs and lows, there are no patterns to be trusted in an amplified ETF like FAZ. Its like looking at it with a funhouse mirror. Stick to the XLF on daily charts and use it as a guide. If you are not an experienced trader, please stay away from FAZ and FAS. There are allot of people getting chewed up looking for a bottom in FAZ. Will they be a day early?

btw It didn't take long to hit our SPY target mentioned in yestereday's post.