Good evening. It has been a challenging couple of weeks. After a superb run during the last half of June this month has been difficult to figure out this market. The market doesn't appear to be ready to move lower just yet. I've been spending a lot of time researching and have many set-ups in the pipeline that are going to get us back on track. Many of the companies are about to report earnings so we'll have to wait and see how traders react to those reports. One of those companies is Teck Resources (TCK) but I will not enter prior to earnings and it may be too late afterwards depending on how good or bad the report is. An ETF in the materials space that would filter the earnings noise is UYM with an entry near the $29.00 area. This is a 2X long ETF in materials and volatile so proper postion size is recommended. I like the play below and am confident we will be able to book gains. Please email me with any questions.
NEW BULLISH Plays
ProShares UltraShort 20 YR Treasury - TBT - close 36.42 change +0.79 stop 34.25
ProShares UltraShort 20+ Year Treasury (the Fund) seeks daily investment results that correspond to twice (200%) the inverse (opposite) of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index (the Index). The Index includes all publicly issued, the United States Treasury securities that have a remaining maturity greater than 20 years, are non-convertible, are denominated in United States dollars, are rated investment grade (at least Baa3 by Moody's Investors Service or BBB- by Standard & Poor's (S&P)), are fixed rate, and have more than $250 million par outstanding. The Index is weighted by the relative market value of all securities meeting the Index criteria. The Fund takes positions in securities and/or financial instruments that, in combination, should have similar daily return characteristics as â€“200% of the daily return of the Index. The Fund's investment advisor is ProShare Advisors LLC.
Target(s): 37.50, 39.40, 40.50, 41.95
Key Support/Resistance Areas: 42.00, 41,00, 39.70, 38.25, 37.55, 34.65
Time Frame: Several Weeks
Why We Like It:
I think bonds are way overvalued and are due for a correction. TBT is an leveraged inversely correlated instrument. Typically bond prices move opposite of stock prices, i.e. as the stock prices decline prices of bonds generally move higher and bond yields move lower, and vice-versa. So a long play in TBT is a bet that bond prices will decline and bond yields will rise which means that money will be flowing out of the bond market and probably into the stock market. In general, bonds are slow movers so TBT gives you more bang for your buck and is highly liquid with average daily volume of about 8 million shares. TBT mad a double bottom on 7/1 and 7/21 and I believe it is poised to move higher. The ETF closed above its 20-day SMA and a prior resistance level at $36.30. TBT has a downtrend line to deal with but I am not expecting it to experience too much trouble here. Our immediate target is $37.50 which near a prior resistance level and just under the ETF's 50-day SMA. TBT will probably find resistance there and when it finds its footing and moves higher we will have a reference point to trail the stop higher. My intention is that this trade could last several weeks and I think TBT could make a run up to its October 2009 lows which is near $42.00. Interest rates are at all time lows and I just don't see them going any lower which will bode well for a long position in TBT. Our stop is $34.25 which is below the YTD lows. NOTE: If there is weakness in equities early this week TBT will probably pullback so patience is most likely needed. A lower entry could be considered in the $36.00 area but I'm not certain we will get it.
Suggested Position: Long TBT stock at current levels
Options Traders: September $37.00 CALL, current ask $1.23
Entry on July xx
Earnings 10/7/10 (unconfirmed)
Average Daily Volume: 3.8 million
Listed on July 24, 2010