Sunday, May 02, 2010

TLT Upslope

While many of the market majors have been in a lateral consolidation (or squatting) pattern over the past 2 weeks, TLT has been quietly building positive momentum, breaking out the LR30 downslope channel and is now showing renewed possibilities based on Friday's wide-based market weakness.
Just in case you were thinking about chasing DBC or GLD, a quick check of the charts shows that the technicals for these two typical safe-havens just aren't that encouraging going forward.
For those readers who aren't familiar with it, the SH is the ProShares Short S&P500, hence the -.96 beta. IRA account holders who are otherwise restricted from shorting the S&P may consider the SH as a means to achieve a short position. There are several nuances to be aware of if you do decide to trade the SH. For example, Friday's SPY volume was 270M, SH volume was 2.6 M.
SPY option open interest is HUGE, with typical spreads about .03. SH open interest is thin at best with near open interest less than 50 at most strikes and the spreads are equally discouraging at .10 -.20. The interesting consideration is that while the SPY is trading at $ 119, the SH is less than half of that at $ 48.
On the currency front the Euro and, to some degree the yen, made a positive turn also based on Friday's weakness, although both remain downslope and have considerable base building to complete before developing trend changes. For my money BZF still looks like the dollar of choice and I base that opinion on the results of the 5 Day Trend column, where BZF was clearly the winner.
Meanwhile, the UUP appears to be going nowhere fast, although the mid and lower panel technicals are reinforcing the PDQ's short signal from a week ago.


Paul said...

As an alternative, a 50% position in SDS, which is the -2x contra ETF of the SPX is a viable alternative. The 50% portion keeps your exposure limited to the same as a 100% of the SH entry, yet you have (roughly) the same upside/downside potential. Bid/Ask spread on SDS is typically $0.01, with 37M shares traded today (5/3).

bzbtrader said...

Great observation and thanks for the tip. I try and avoid any bid/ask spreads > .02 so this is a good tactic. I don't include the SDS in the rotator because of the skewed beta of a 2x.