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JimVanMeerten (61.08)

Time to short the Euro???

Recs

3

February 15, 2010 – Comments (5) | RELATED TICKERS: EUO

Each weekend I always step back and try to cut through all the noise and see what the state of the market really is. I use Barchart to get all my data and try to use a consistent methodology so I get the feel of what is really happening. Let's look at the 3 sets of data I use to see where we're at this week.

Value Line Index -- this index uses 1700 stocks so it's much broader than the narrower S&P 500 or Dow 30 -- Up 2.54% this week -- Last month down 2.89% but up 1.57% so far this month -- Let's call it recovering
1 - Barchart's technical indicators signal a buy on only 5 of the 13 signals for an overall rating of hold

2 -  The Index closed Friday above its 100 day moving average but is still below its 20 and 50 DMA

Barchart market momentum indicator -- normally covers approximately 6000 stocks --the percentage of stocks closing above their daily moving averages for various time frames -- still weak but improving

1 - 20 DMA -- 42.01% closed above -- last week it was only 20.01%

2 - 50 DMA -- 43.42% closed above -- last week it was only 35.31%

3 - 100 DMA -- 54.84% closed above -- last week it was only 45.63%

Ratio of stocks hitting new highs to stocks hitting new lows for various periods -- 1.0+ bullish, 1.0 neutral, below .99 bearish -- we have 1 bearish and 2 bullish signals

1 - 20 day ratio of stocks hitting new highs to new lows -- 434/474 = .92

2 -  65 day ratio of stocks hitting new highs to new lows -- 246/209 = 1.18

3 -  100 day ratio of stocks hitting new highs to new lows -- 194/149 = 1.30

Summary - the market shows improving numbers but has still not returned to the level where I feel comfortable. When at least 50% of the stocks are trading above their recent daily moving averages then you have a better than 50/50 chance of having your portfolio increase. There is a lot going on over there in Europe and we seem to be improving faster than they are. Greece is a problem and I'm afraid that we may see problems in Portugal, Spain and maybe even France. My biggest fear is not the economic turmoil but maybe some civil unrest. If there are large numbers of men ages 18-40 unemployed and they begin to blame their governments for their plight we might see riots like we saw in some of the poorer parts of Paris a few years ago. Nothing good can happen during civil unrest. That leads me to my next investment.

Next week's strategy -- Since our economy has a jump on Europe I'm going to short the Euro. I'll do that by adding 500 shares of EUO - the ProShare Ultrashort Euro ETF - Right now the Euro is at 1.359. Back a few years ago I can remember when it traded at .85. If that happened again since this is a leveraged ETF I could see a gain of up to 120% on this trade.

Wall Street Survivor results -- This month I look like a champ so far. The S&P 500 is up .15% and I'm up 4.52% with the next competitor the Motley Fool All Stars up .57%. I'm still down for the lifetime of this contest but I'm trying to catch up. We've all seen how rankings can change at the drop of a hat. Wish me luck.

 

Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email JimVan Meerten@gmail.com

Disclosure -- I do not hold any positions in the stocks in my Wall Street Survivor portfolio at the time of publication.

5 Comments – Post Your Own

#1) On February 15, 2010 at 1:22 PM, cdulan (90.90) wrote:

I  agree with you.  But my approach is to short oil instead.

http://lockstep-investing.blogspot.com

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#2) On February 15, 2010 at 1:33 PM, amyers1 (47.47) wrote:

Jim,

I have a question about your strategy. Do you not find that by waiting for all of your charts and technical levels to align that you miss the largest portions of these moves? I have had the euro shorted for a while now and have a decent profit off of it but I am thinking of removing my postion as I believe the move might be over you are just now moving in. Maybe there is still considerably more downside but it seems the easy money has already been made. I just wanted your opinon on this because I have seen you and others post with similar ideas is there something that I am missing here?

Thanks and good luck

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#3) On February 15, 2010 at 1:41 PM, kaskoosek (85.41) wrote:

This is a short term bear rally for the dollar.

 

From a fundamental standpoint oil prices are going down 6-12 months from now due to china curbing excess liquidity. I am also going to bet that the Euro is going to rally against the dollar in the mean time. 

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#4) On February 15, 2010 at 2:18 PM, PSU69 (87.42) wrote:

Europe has been flooded with folks from the east, the African coast, and the oil rich nations.  The pressure of limited jobs is building.  Social pressures with unemployment running higher in certain demographics has exacebated the pressure.  The weight of social programs adds to the tax on those who do earn.  I personally would not short oil due to the math of China and India adding more oil consumption to the future demand (see Branson's Study that predicts a five year scenario of demand exceeding supply).

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#5) On February 16, 2010 at 11:17 AM, JimVanMeerten (61.08) wrote:

My strategy to find investments is different for stocks and ETF's.  On a stock I screen for the stocks having the most frequent new highs in the last 20 trading sessions.  On ETF's I screen for the 14 day relative strenght index.

The reason for the difference is just a function of the screening tool - Barchart.com - that I use. 

Remember that the Euro play is not a play on the European economy it's a play on the relative strength of the US dollar against the Euro.

Right now I think you'll have to agree our economy is recovering quicker than theirs. That make the dollar stronger relative to the Euro.

I look at back in the early 2000 when the Euro was at 85 cents, it's now 1.35.  The EUO is leverages so my goal is a 120% gain but I'll be out at the 50 day moving average.

On the oil play -- my target on oil is 75 dollars a barrel.  That's what the Saudis need to have a balanced economy and that figure comes from the Saudi Oil MInister.  I feel Oil is like a rubber band where the tack is at 75.  Above 75 there is a pull back to 75 and below 75 there is a pul up to 75.   Just my thougth but over time it has seemed to work. 

 

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