A 3x Leveraged Bet on a Short-Term Bounce in the Dow

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

U.S. markets rallied sharply on Friday, closing the week on a positive note. For the week, the Dow Jones was up 0.37%, the S&P 500 jumped 0.33% and the NASDAQ recovered 0.42%. Global markets had little time to benefit from Friday’s relief rally, and the MCSI Emerging Markets Index ended the week 0.79% lower.

Big gainers in your Bull Market Alert portfolio included Flextronics International (FLEX), which rose 2.57%; ProShares Ultra Real Estate ETF (URE), which added 1.60%; and United Rentals (URI), which gained 1.30%. Both ProShares Ultra Real Estate ETF (URE) and United Rentals (URI) also crossed back above their 50-day moving averages and moved back to a BUY.

You were, however, stopped out of 3D Systems Corp. (DDD) at a loss. The Bank of Ireland (IRE) also dropped below its 50-day moving average and is now a HOLD.

This week’s Bull Market Alert recommendation is a bet on a coming bounce in the Dow Jones Industrial Average through the ProShares UltraPro Dow30 (UDOW) — a triple-leveraged bet on a bounce in the Dow.

Moving averages are one of the most widely followed indicators in technical analysis.

Simply put, when the price of an index or stock stays above a particular price moving average line on a chart, that price level serves as support.

If the price falls below a moving average line and can’t break through from the underside, this price level is a line of resistance.

And among moving averages, the 200-day moving average is the “granddaddy of them all.”

Last week, followers of the 200-day moving average became very excited when they saw that the Dow Jones Industrial Average bounce off its 200-day moving average — that is, it acted as support for the overall index.

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As the chart below confirms, whenever this happened in the recent past, the Dow has gone on to record some significant short-term gains.

[Chart SPDR Dow Jones Industrial Average ETF]

So, betting on ProShares UltraPro Dow30 (UDOW) this week offers you a 3x leveraged way to profit from this trend. The stop on this position is $101.00.

If you want to play the options, I recommend the October $166 calls (DIA141018C00166000) on the related but unleveraged SPDR Dow Jones Industrial Average (DIA) exchange-traded fund. These calls expire Oct. 18.

I also want to note that 3x leveraged ETFs aren’t for the faint of heart, and this trade is more typical of the trades I recommend in my premium trading service, Triple Digit Trader. But the timing for a bounce in the Dow is so good today, I couldn’t deprive Bull Market Alert subscribers of this trade as well.

Portfolio Update

The Bank of Ireland (IRE) fell 2.45% last week as global uncertainty trumped improving fundamentals. European Central Bank President Mario Draghi recently commented on geopolitical risks, such as a failed Gaza cease-fire and the U.S. air attacks in Iraq, which pose “a particular threat” to the European recovery. IRE moved below its 50-day moving average (MA) on the news to become a HOLD.

Visa Inc. (V) dipped 0.64%. Visa is working on an anti-fraud system that incorporates real-time authorization risk profiling to identify fraudulent credit card transactions before they occur. A recent gasoline station pilot program yielded a 20% dip in fraudulent transaction rates. V is a HOLD.

ProShares Ultra Real Estate ETF (URE) added 1.60%. Your 2x-leveraged bet on real estate took a turn higher last week at the 50-day MA. URE has had a long and remarkable run, and the recent correction to its 50-day MA is well within the norm of its past 50-day MA dips. URE may be primed to move higher. URE also moved to a BUY last week.

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Vipshop Holdings Limited (VIPS) closed the week flat. VIPS’ business premise is a simple one, and one that is proven to work. Vipshop offers quality products, with popular brands, at prices significantly less than standard retail. VIPS will report earnings on Aug. 13, after the market’s close. VIPS is a BUY.

United Rentals (URI) gained 1.30% last week. URI is nearly tied for first place on the short list of top rental & leasing companies in terms of return on investment (ROI). URI’s trailing 12-month ROI is a healthy 9.50%. URI moved to a BUY last Friday.

Nicholas Vardy

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If you had never looked at a chart of any of the major stock market indices before and you saw one from last week, you would likely say, “What happened?”

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