In fact, your three 20%+ gainers in the Global Bull Market Alert portfolio — the CurrencyShares British Pound Sterling Trust (FXB), the iShares MSCI United Kingdom Index (EWU) and the PowerShares DB Commodity Double Short ETN (DEE) — are all short positions, which gain when they go down. In fact, both EWU and DEE chalked up record gains this past week. Meanwhile, you were stopped out of two of your stock positions, Millicom International Cellular S.A. (MICC) and the iShares MSCI Emerging Markets Index (EEM), for a loss.
This week’s Global Bull Market Alert pick, the SPDR Gold Shares ETF (GLD), up 6.7% this year since Jan. 1, has been one of the few exceptions to this almost uniformly bearish scenario.
Gold occupies a special place in the hearts and minds of investors across the world. Yet gold’s relatively lackluster performance in the midst of a global financial meltdown has been a disappointment to the gold bugs of the world. If you’ve been following Global Bull Market Alert, you know that I am not a gold bug. I am completely agnostic about how I make money in the markets. But there are certain times when gold offers a solid trading opportunity, and here’s why I think now is one of them.
First, gold tends to do well when fear in the markets is high. With the “Obama bounce” now relegated to the realm of wishful thinking, there is no shortage of fear in the market place. Since 1971, the dollar has been backed not by gold but by the full faith and credit of the U.S. government. Although I think European currencies are in worse shape, hence your short positions in both the British pound sterling (FXB) and the euro (DRR), there are plenty of reasons to be worried about the hubris of the Obama administration’s bailout efforts and $1.75 trillion deficit for 2009. Obama’s current self-satisfaction may turn out to be his Bush-like “Mission Accomplished” moment.
Second, after a remarkable run in the month of February, gold hit the $1,000 dollar per ounce mark for the first time since last March. But after peaking on Feb. 20, gold proceeded to endure one of its sharpest falls ever — falling in eight consecutive days of trading. Gold is now as technically oversold as it has been since mid-January.
Finally, gold is emerging as a favorite among some of the world’s most successful hedge fund managers. John Paulson, who reaped $15 billion in 2007 betting against subprime mortgages, has recently added to his holdings. Last week, Paulson told clients his hedge fund will offer its investors a new share class denominated in gold. Gold is the largest investment in the portfolio of activist hedge fund Greenlight Capital, led by David Einhorn. Whether you are a gold bug or not, gold is proving its mettle as an alternative to crumbling stocks, corporate bonds and U.S. Treasuries with microscopic yields.
So buy the SPDR Gold Shares ETF (GLD) at market today, and place your stop at $78.80. If you want to gain more leverage on this pick, buy the PowerShares DB Gold Double Long ETN (DGP). Double leveraged ETFs/ETNs don’t always behave as advertised. If we stop out of GLD, aggressive investors who opted to buy DGP also will sell that holding. We will track the leveraged position in DGP as the equivalent of an option. The chart below compares the performance of GLD to DGP over the past three months. Be aware that with DGP, your highs are higher but your lows will also be lower.
The PowerShares DB Commodity Double Short ETN (DEE) last week hit another record high, $100.96, before selling off. Recall, you’ve already sold off half of this position for a 22% gain. This position is getting increasingly volatile — hinting that it may be near a top. But for now, let your profits run, and keep your stop at $82.00.
Market Vectors Double Short Euro ETN (DRR) ended the week flat after rallying up to $56.57 Thursday. Once the euro penetrates the $1.25 to 1 euro level on the downside, look out below. With the fringe economies of the eurozone, Portugal, Ireland, Greece and Spain (PIGS), increasingly on edge, the pressure on the euro is all on the downside.
Your short position in the CurrencyShares British Pound Sterling Trust (FXB) was flat in last week’s trading. But the British currency breached the $1.40 level on the downside in this morning’s trading in London. If it stays below this level today, look for a sharp move down to the $1.35 level. We adjusted our stop price to $153.55 to include all of the dividend payments since we bought the position.
Your short position in the iShares MSCI United Kingdom Index (EWU) breached the $10.00 level last week for the first time, closing all the way down at $9.27 for a 7.5% gain this past week. Tighten your buyback stop to $12.00.
The iShares iBoxx $ High Yield Corporate Bond (HYG) has experienced significant downward pressure and is now near its dividend adjusted stop price of $61.43. Remember, you have already received dividend payments of $1.47 per share on this position since my initial recommendation.
Petrobras (PBR) fell 3.6% this week. Your sole stock position has three things going for it: it’s technically oversold; it’s a play on rising oil prices; and it has the confidence of George Soros, one of the world’s greatest traders.
The Rydex Inverse Government Long Bond Strategy Inverse (RYJUX) corrected this week, with U.S. Treasuries rallying. Keep your bet against the Treasury bubble.
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