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TNA Retreating After Rally

|Includes:Direxion Daily Small Cap Bull 3x Shares ETF (TNA), TZA

Two days ago, I published an article on TNA using a chart showing the Descending Triangle Pattern in the 3x Leveraged ETF on Small Cap Stocks. The article can be found here.

I had mentioned that I would be watching to see whether the pattern broke out to the downside (sources state that this pattern does so about 64% of the time from studies of historical data), or, whether it would break out to the upside which can be strong. I was going to look for a closing price on TNA to close at a breakout one direction or the other.

Well, as markets often do, they surprised:

- TNA broke out yesterday to the upside (the 36% side of statistics) and

- moved strongly almost entirely to the position sell target) and closed around 70. Well, so much for waiting for the close to communicate the break out.

Here is a 3 Month Daily chart updated from today:

(click to enlarge)Click to enlarge

Viewing the chart, you can view the red line which is roughly the top of the descending triangle from the prior article showing that a close above 66 would be confirmation of the breakout. You can see that yesterday the price ran almost all the way to the next resistance level just above 70.

I missed the rise to 70, as I was waiting for the closing price, but watching the action in the late afternoon, TNA was sitting flat and starting to show a little weakness. At that time, I decided to accumulate some weekly TZA calls (could have bought TNA or bought puts on TNA for similar position) to short TNA. Today, that weakness continued and we closed at 67.66.

I plan to watch the action over the next few days to look for the right exit on these calls, with the potential to get out in the 62-64 range on TNA - and whatever that means in pricing for TZA and the calls I'm holding.

At around 62, I would start looking for another entry point in TNA as soon as it shows bottoming and the start of some strength. Based on the downward channel, it is possible TNA could continue to go lower, below 62. At that time, I'll have to re-evaluate price targets to go back to the long side for a range bounce.

Disclosure: I am long TZA.

Additional disclosure: Long TZA via weekly calls (short TNA short-term). Depending on how TNA and TZA trade over the next few days, I may trade long or short TNA or TZA and/or enter into long or short positions using calls, puts or spreads. The thoughts and opinions in this article, along with all stock talk posts made by the Author, are my own and are shared on the basis of helping others learn, to provoke other points of view that help us all on our journey to become better investors. My posts are never intended to provide investment advice. Investors should always view multiple sources of information in their due diligence process.

Stocks: TNA, TZA