UYG: Wave 5 Fakeout And Key Reversal

(Click On Chart To Enlarge)

I bought the UYG when it rallied back to UNCH, at 9.52, just below the Wolfe Wave pattern. I would have been happy just with yesterday's Wave 5 fakeout and a close at the bottom of the Wolfe Wave, but the UYG did much better than that, putting in a bullish Key Reversal candle: a new low for the move, and then a close that was higher than the prior sessions high. Ver-ry nice.

So, "the fix is in," as far as putting the proverbial "everyone" wrong-footed on the false breakdown to 5.77, which was very near the Ascending Triangle (pattern in purple) target of 5.62. That pattern broke down at 16.15 going into the October 3 close, prior to the big gap down on Monday, October 6. Yesterday's low achieved 98.6% of the measured move down, so that's certainly "close enough" to that target getting MADE, and hopefully, we'll get a nice rally off yesterday's reversal.

On any selloff from here, we want to see the bottom of the Wolfe Wave become support, if it gets tested. A slight intraday penetration is fine, but I shouldn't like to see a CLOSE below it. After a Wave 5 fakeout like we got yesterday, we "should be" headed higher, and sharply higher. That's one of the hallmarks of a Bullish Wolfe Wave, to move sharply in the opposite direction, to correct how overdone things got at the Wave 5 fakeout low. At yesterday's low, the UYG was down 77% in just two months' time. There aren't any limits on HOW overdone things can get, but I think we can agree that that kind of loss sure seems a tad overdone ;)

Next order of business, beyond remaining above the bottom of the Wolfe Wave, is to get through the Tenkan-Sen (8 day...bold red line) and the Kijun-Sen (21 day ... bold green line) which are slightly inverted at 8.42 and 8.45, respectively, but positioned to make a Bullish Cross on a rally. If we go rallying gangbusters out of the gate in the morning, we might expect at least some turbulence in that area. After that 8.42-8.45 resistance, we need to break out of the Wolfe Wave, which would be a print of 10.06 for today. I don't expect that to happen. Just pointing out where the goal line is so we'll know if we should happen to score ;)

As far as the target line is concerned, I have absolutely no idea whether or not we'll even break out of this Wolfe Wave, let alone get a rally of that magnitude. These patterns are very unorthodox. Some of them work out, some of them don't. But, when they do, like the TWO Bullish Wolfe Waves did in the SKF (see those charts in my October 25 post, "How The Shorting Ban Played Out," the moves can be quite spectacular.

A move higher from yesterday's low of 5.77 to where the target line is for today's session, at 12.85, would be a gain of 122.7%. That kind of percentage gain is rather a lot to expect even over several years' time, let alone over several days' or weeks' time. Do I expect it? No, I really don't. But, I do think that the UYG can have a very nice percentage gain off yesterday's low.

Off the July 15 low of 14.08, for example, the UYG had a sharp six day rally to 24.79, for an outstanding gain of 76%. Something like that would be most welcome and is more realistic. However, the Kumo (Cloud) resistance (vertical lines) is above the target line (Blue #6), and the October 6 gap at 15.08 intersects the target line around Thanksgiving, so hey, you never know. Those things (Kumo...gap) often act like magnets, and the UYG might be given to at least chasing them to the upside for a bit.