Profiting Off of Volatility Part 1: UVXY Up 50% In Three Days

06/14/2016 9:15 am EST

Focus: STRATEGIES

Michael Berger

President & Founder, Technical420.com

After Michael Berger, Associate Editor of MoneyShow.com, recommended buying volatility-based ETFs on Thursday, the funds he recommended significantly outperformed the market with one ETF rallying more than 55%.

Last Thursday, we said the stock market’s rally seemed to have stalled as global growth concerns continued to weigh on investors prior to a number of important events (Bank of Japan meeting, US Fed meeting, and Brexit), which could significantly impact global markets.

Due to the risks associated with these events as well as the stock market and oil’s recent rally, we highlighted six stocks and ETFs to buy given their leverage to our two favorite sectors, gold and volatility.

In the article, we recommended the following equities and funds:

Gold/Gold Miners

% Gain

Volatility Funds

% Gain

SPDR Gold Trust (GLD)

1.7%

iPath S&P 500 VIX ST (VXX)

27%

Barrick Gold Corp (ABX)

5.2%

ProShares Ultra VIX ST (UVXY)

59%

NovaGold Resources (NG)

7.2%

ProShares Short QQQ (SQQQ)

6.3%


What is Driving the Market?

Many factors have been driving the market over the last week and we expect these to continue to drive the market in the near term.

The fear factor around the Brexit has been more significant recently as the leave campaign continues to strengthen. Also, Britain's top-selling newspaper continues to tell its readers to vote to leave the European Union (EU).

Opinion polls for the leave campaign are at its strongest level in months. This has caused volatility to spike as people like JP Morgan’s Jamie Dimon, Janus’ Bill Gross, and Britain's Prime Minister David Cameron warned about the risks associated with leaving the EU.

Investors are also looking ahead to crucial central bank decisions from the US and Japan this week. Although the Federal Reserve is not expected to take action this week, the actions of other central banks will likely continue to drive the market as its easing programs wash over global bond markets.

Will Japan Surprise the Market?

Many analysts and economists believe the market could receive an unexpected catalyst from the Bank of Japan (BOJ) tomorrow as additional easing measures are announced.

Although further easing from the BOJ would serve as a catalyst, the rally would be short lived as the United Kingdom’s referendum continues to scare investors.

We continue to see value in gold and gold mining stocks as an interest rate hike in the US looks doubtful due to the uncertainty around the Brexit. We remain favorable on volatility-levered funds and would look to accept gains today and re-enter once the fears of a Brexit subside or when the market rallies back.

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