Another day, another triangle breakout waiting to happen. With how stocks have behaved over the last year, triangles have popped up all over the market. This time, however, it’s not on a stock, but an exchange-traded note (ETN).
ETNs, while rarer than the more traditional ETFs (exchange-traded funds), are still completely valid investment products. They’re issued as senior debt notes, meaning that ETNs behave more like bonds as they are unsecured. By comparison, ETFs provide investments into a fund (hence the name) that hold the assets they’re designed to track, like stocks or commodities.
And though the ETN we’ll be examining today is the first one that we’ve ever featured here, it certainly won’t be the last. Because if what I think is about to happen actually happens, we’ll be talking about this ETN for months to come.
…Mostly because it’ll rake in huge gains after this Thursday’s U.S.-China trade war meeting, provided that the talks go poorly – something that seems highly likely after the Trump administration blacklisted Chinese tech this morning.
In the weekly candlestick chart above, we’ve plotted the iPath VIX Futures ETN (NYSE: VXX), an ETN that, as its name would imply, tracks the CBOE Volatility Index (VIX) futures.
In many ways, VXX runs opposite the general market. If the major indexes rise, VXX falls, and vice versa.
And if Thursday’s trade talks don’t result in any real progress, you can bet that VXX will rocket upwards as a result.
But independent of the upcoming meeting in Washington, VXX is approaching a traditional triangle breakout. After setting a series of lower highs, the upper trendline has steadily declined, mirrored by the rising lower trendline after a higher low was set three weeks ago.
If the market keeps falling, and VXX rises, a breakout at around $26.50 might happen – making it a good place to put a trade trigger to go long. The stochastics, in this case, aren’t ideal, but they’re low enough to suggest that VXX still has more room to run.
Add to that the aforementioned trade talks, and you’ve got a setup that not only has significant potential but might protect your general (bullish) portfolio as well. If the market is destined for a shocking downturn, a VXX long position can provide some helpful coverage from dramatic losses.
If, on the other hand, the trade meeting goes well, it might make sense to go short on a downward breakout. But based on what we’re hearing these days, that seems less than likely.
Which, if anything, should scare “buy, hold, and hope” investors.
All while short-term traders rake in the dough.
