Looking To Trade Stock Market Volatility Ahead Of Fed's September Decision On Rates: This Fund Offers Leverage

The ConvexityShares Daily 1x SPIKES Futures ETF SPKX fell about 5% on Monday, ahead of several key economic data sets, which will offer traders and investors clues as to whether the Federal Reserve will apply another rate hike next month.

The ETF: SPKY is a 1.5X leveraged fund that tracks the SPIKES Futures Short-Term Index and measures volatility in broad-based equities in a similar way to ProShares Ultra VIX Short Term Futures ETF UVXY, which tracks the movement of the S&P 500 VIX Short-Term Futures Index.

For every 1% daily movement in the SPIKES Futures Short-Term Index, the SPKY fund seeks to move 1.5%, meaning that it’s for short-term trades and should not be held for a long period of time. 

The market is currently pricing in a pause for September, with an 80% probability the central bank will keep rates steady. At the Fed’s subsequent meeting in November, however, money markets see a 61% chance that the central bank will reinstate its tightening campaign.

If the Fed applies a rate hike next month, the stock market is likely to become volatile, which could offer upside in SPKY. Further, the ETF signaled at least a short-term bounce could be on the horizon by printing a hammer candlestick on Monday.

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The SPKY Chart: SPKY negated its uptrend on Friday by printing a lower high at the $5.60 mark. On Monday, the ETF formed a lower low, which confirmed a new downtrend is likely in the cards.

• Within every downtrend, brief rebounds take place, however, and Monday’s candlestick suggests the ETF could pop higher on Tuesday. If that happens, bullish traders can watch for a bearish reversal candlestick, such as a doji or shooting star candlestick to form on smaller timeframes, which could indicate the next local top has occurred.
• SPKY has resistance above at $4.97 and at $5.59 and support below at $4.55 and the psychologically important $4 mark.