UVXY And NUGT Seem Strong Buys

| About: Direxion Daily (NUGT)

Summary

UVXY seem oversold and is at support.

NUGT also seems oversold and is near support.

Interest rates may not rise, and even if they do, we may have a correction.

As we prepare for Thanksgiving, two "stocks" seem great buys to me. The first is the ProShares Trust Ultra VIX Short Term Futures ETF (NYSEARCA:UVXY), shown below. The leveraged ETF seems to be oversold and has hit support. The RSI (Relative Strength Index) is 32 (near oversold) and W%R is -100 (very oversold). Thus, the ETF could rise soon.

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Source: Stockcharts.com

UVXY rises and falls with volatility, which is measured by the CBOE (Chicago Board Options Exchange) Volatility Index (VIX). The index also looks oversold and has fallen below support. The RSI (Relative Strength Index) is 39 (near oversold) and W%R is -98 (very oversold). Thus, the index could rise.

Click to enlarge

Source: Stockcharts.com

But would volatility rise? The Fed FOMC minutes start on Tuesday and end at 2 pm ET on Wednesday. Usually, volatility rises at the end of a Fed meeting. But "seasonality is against a spike in VIX heading into Thanksgiving week." And the Friday after Thanksgiving is almost always light volume, as well as the week after Christmas. But such light volume "can mean larger swings in stocks." Plus, "low volume means there are fewer shares trading, and fewer shares means less liquidity across the broad market. Stock price volatility rises in a low volume market." And Trump's Presidential win was supposed to bring market volatility and a market pullback. Well, that may happen as the Dow, S&P 500, NASDAQ, and Russell 2000 reach all-time highs. Further, all four indexes reached all-time highs on the same day for the first time since December 31, 1999.

The other "stock" that looks a good buy is the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT). The leveraged gold miner bull ETF also seems to be oversold and is near support. The RSI (Relative Strength Index) is 36 (near oversold) and W%R is -83 (oversold). Thus, the ETF could rise.

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Source: Stockcharts.com

The ETF should rise and fall with gold, which also seems to be oversold and has hit support. The RSI (Relative Strength Index) is 27 (oversold) and W%R is -94 (very oversold). Plus, Trump could bring uncertainty, as no one knows what he is going to do. "He took 141 distinct policy positions on 23 issues over the course of 511 days." It seems like he will continue changing his policies. Thus, gold, the ultimate hedge to uncertainty, could rise.

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Source: Stockcharts.com

While the Fed FOMC minutes could strengthen the case for an interest rate hike, Yellen did mention on November 17 that, while the case for an increase in interest rates could come relatively soon, the unemployment rate is slightly above what the Fed would like. Core inflation is still about 1.75%, below the Fed's 2% goal. And any rate hike could further strengthen the already strong dollar. A stronger dollar would make it harder for emerging markets to buy U.S. exports. It is interesting that the IMF did warn the Fed the last time that a rate hike could cause a liquidity crisis in emerging markets. It did, and the markets went through a 13% correction. Thus, an interest rate hike may not be a certainty.

The U.S. dollar pulled back today from a 13-year high, but still seems to be overbought and has hit resistance. The RSI (Relative Strength Index) is 75 (overbought) and W%R is -9 (very overbought). Thus, the U.S. dollar could fall.

Click to enlarge

Source: Stockcharts.com

The long-term chart of the U.S. dollar also points to the dollar falling. The orange lines are the current resistance and support lines as shown in the graph above. The purple line shows that the dollar could fall back to support.

Source: Long-term chart of U.S. dollar

Conclusion: It might be a good time to buy the ProShares Trust Ultra VIX Short Term Futures ETF and the Direxion Shares Exchange Traded Fund Trust.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in UVXY, NUGT over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.