5.5% trading profit on a 3-day swing trade (review of $EEV trade setup)

Recently, we entered a swing trade in ProShares UltraShort MSCI Emerging Markets ($EEV). Inversely correlated “short ETFs” such as EEV are designed to move in the opposite direction of their underlying index. This allows us to basically sell short the underlying index through buying (going long) the inverse ETF. In this case, buying EEV was the same as taking a bearish position on the MSCI Emerging Markets Index (note that “short ETFs” are designed to be used only for quick, short-term trades).

In our May 4 newsletter, subscribers of The Wagner Daily were alerted to a potential buy entry in EEV above the high of May 3. We liked the reversal bar action on May 1, followed by the false trigger on May 3, which provided a clear entry point above the May 3 high. The chart below details the technical buy setup prior to our entry:

That day, EEV triggered its buy entry at $26.91, and subsequently followed through nicely to the upside, closing at its high of the day on above average volume. Because the broad market was selling off sharply and approaching near-term oversold levels, EEV was taken as a very short-term trade (2-5 days), as we were looking to sell into strength on a breakout above resistance at the $28.00 area. Due to the sharp selling action in the market on the morning of May 8, EEV broke out above $28.00 and hit our price target of $28.32, allowing us to neatly book a 5.5% gain on just a 3-day hold. The exit point is shown on the chart below:

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