Volatility overall has increased in the stock market, as indicators such as Average True Range (ATR) are reaching the highest levels since July in major indexes. Volatility provides opportunities for short-term traders as the increased price moves allow for greater profit potential (or losses) in a shorter amount of time. These stocks, ETFs and ETNs have recently moved big, or are expected to, anda therefore may occur on the watch lists of many day traders and swing traders this week.
iPath S&P 500 VIX Short-term Futures ETN (ARCA:VXX) typically moves inversely to the S&P 500, but often in greater magnitude--especially during times of uncertainty in stocks. As an example, On February 7 VXX dropped 6.29% as the S&P 500 SPDR (ARCA:SPY) rose 1.24%. This ETN is typically a short-term play, as it has a significant long-term downward bias. A volume increase over the last couple weeks indicates additional interest as the volatility index put in a 52-week low of $39.85, and then proceeded to rally to the highest levels since November. Short-term, VXX has rallied slightly more than one would expect based on previous price swings, indicating traders are aggressively seeking a hedge against further declines in the S&P 500. Alternatively, it could mean a vicious sell-off if the S&P 500 continues to climb. The bias is still up at the moment, as there is a large support range between $45 and $42.
iShares Silver Trust (ARCA:SLV) has been fairly quiet of late, trading within a price band between $19.84 and $18.26 since mid-November. A breakout of this range will occur, although when is unknown. A break above $20 could trigger a rise, breaking both the short-term range, a longer-term trend-line, a triangle, and the silver trust would have also completed a basing pattern just above the June low of $17.75. There is significant resistance above though, primarily at $22 and $24. A drop below $18 could trigger another leg down in the long-term downtrend. Near $16 is the next target. The area around the prior low at $17.75 may provide support along the way.
Activision Blizzard (Nasdaq:ATVI) rose 14.39% on February 7 following an earnings announcement. Over the last five years this stock has moved predominately within ranges, followed by spurts higher or lower, then more ranging. Having recently broken to new highs a new range may develop here, offering short-term traders the opportunity to trade dollar or several dollars swings. There is also a strong upward bias, extending from early 2013, which may continue to attract longer-term investors. The February 7 daily range--high at $19.95 and low at $18.78--may provide short-term momentum, in the respective direction. $18.50, which was in the vicinity of multiple highs in the prior range, is likely to provide support on short-term sell-offs.
NCR Corp (NYSE:NCR) has fallen aggressively from a $41.63 in October. The drop of 8.32% on February 7 indicates that the downtrend is likely to continue. There is potential for minor support near $31.38 (December low), although more likely the price will break though and continue toward a target of $28 to $27.50. The downtrend has nearly twice the typical volatility of the uptrend, offering opportunities on the short side. If the price holds $31.38 though, it is possible the price may see a bounce toward $37.75. Even then, unless $37.75 is significantly penetrated by a rally, the bias remains down.
The Bottom Line
Trading volatile stocks, ETFs or ETNs is not for everyone. While the profit potential is large, losses can also mount quickly. Have a game plan for trading these instruments and stick to it. This should include strict risk controls based on position size and stop-loss levels, as well as well-defined entry and profit taking strategies.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.