A Bearish Bet Against the Euro

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
With the European debt crisis rearing its head yet again, this special Bull Market Alert position opens a bearish bet against the European currency through the UltraShort Euro ProShares (EUO).
This exchange-traded fund (ETF) seeks to replicate twice the inverse performance of the EUR/USD daily price change.
Put another way, when the euro goes down against the U.S. dollar, this fund will go up by twice as much.
Long-time Bull Market Alert subscribers will recall that we’ve bet and profited from bets against the euro in the past.
Here’s why I think this is a good time to do so again…
In many ways, May of 2011 is a reprise of what happened in May of 2010. Just about a year ago, traders were also betting big against the euro, with the common currency hitting a low of $1.18 to the dollar last year. At that time, many pundits were even predicting the euro’s parity with the U.S. dollar.
But as Greece, Ireland and Portugal implemented various austerity measures and the economic prospects of the eurozone appeared to improve, the euro staged a blistering year-long rally from $1.18 to $1.48.
That all changed at the start of May, as markets began to focus again on Greece’s inability to finance its debt. After hitting a key point of technical resistance, the euro has dropped over 4% against the U.S. dollar, falling below the $1.40 level. The euro has also recently dropped below its 50-day moving average for the first time since January. With 2-year Greek debt hitting 24.5% yields, and the market skeptical of Greece’s new-fangled proposals to sell off assets to finance its debt, there’s a good chance that this downward trend in the euro will continue.
A bet against the euro is also a way to hedge your current “option-like” stock positions in European banks.
So buy the UltraShort Euro ProShares (EUO) at market today and place your stop at $16.00. If you want to play the options, I recommend the November $19.00 calls (EUO111119C00019000).

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Both global and domestic markets are taking a breather after their multi-month extended run. Explanations vary from concern over a Greek bailout; the slowdown in the Chinese economy; to the sharp sell-off in oil and commodities early in the month. Or you could put it down to simple profit-taking in a market that has enjoyed a strong run. Of course, the answer is a combination of all of these factors.
 
In any case, the endless spate of “Sell in May and Go Aw

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