As to that, let's be serious - the Euro is the most centrally planned currency in the world (One central bank for 10 economies? A central bank for ONE economy does enough destruction on a long enough time scale - for 10 we should see some interesting results). It is our opinion that (with about 5000 years of history on our side), since central planning of money instead of letting the market determine its makeup and amount leads to long term malinvestment on a massive scale, and is essentially the cause of depressions (see current one for reference), attempting this crazy experiment for TEN countries is.... some non-existent word that means "a thousand time crazy".
Anyway, the point of the matter is that the broad and severe negative shift towards the world's "darling" currency, the EURO, has gotten underway. People will point figures at sovereign debt downgrades and potential defaults and bailouts etc, but the fact of the matter is the underlying psychology is responsible for these things, and these "events" are the results of major shifts in perception.
And so I had no qualms about shorting this lovely Spanish bank back on the 8th of January (we posted the recommendation on the 7th and executed the trade on the 8th), and as such, we have seen some "as expected" results.
Here's the original chart of the stock:
And here is the update chart.
Despite the fact that I had some fairly severely worded emails questioning my analysis of this bank "when the US financial system is collapsing", you can see that this trade is certainly running in our favor. Not to say there certainly aren't some excellent shorting opportunities in US financials and commercial real estate owners, but maybe we just wanted a to do a jota.
I am placing a stop at $15.40 just in case the most recent and severe gap does fill and the corrective reversal comes early - there is a fairly low probability of this, however that seems to be the tightest stop I can allow considering the size of some of the intraday moves.
As such the trade is 17.7% in the money right now, gross, and should continue to yield higher. Pay attention to the last major unfilled gap from July 2008, which should offer some support and a major corrective area - I'm anticipating closing out the position around there and letting the correction run up before shorting again - the end target is below March low, certainly under $5.00 per share, so there is some excellent profit potential.
One final note. One of the advantages of short-selling stocks that are listed on the US exchanges is that they are not only going down in value, but the USD is going up in value. For example, if you are a long-term gold or silver buyer, consider the following two options (This is sort of our mid-term plan of action):
If you short the S&P Minis or Dow Minis and gain 50%, say with $10,000.00 - you will have $15,000.00 at the end of the trade.
If gold drops down to $650 or so, which is our current target area, from here ($1100), the price is down 41%. If silver drops down below $9.00, which is our target range, from here ($16.50), that is down 47%.
I'll lay out two scenarios for you:
In scenario 1, you buy $5,000 worth of gold and $5,000 worth of silver. This grabs you about 4.5 ounces of gold and about 320 ounces of silver. That's what you get. Whether the price of gold and silver does go down to $650 and $9.00, respectively, or we hit the stratosphere like all the gold bugs are saying is the next step, you have 4.5 ounces of gold and 320 ounces of silver. If that is a risk you are willing to take as a buyer then that is your choice.
In scenario 2, let's say the market plays out like we anticipate - actually not quite because we are saying a much higher gain than 50% on a short-sell from the market peak, but we'll use 50% anyway.
So, you forgo buying gold and silver in favor of taking you $10,000 and shorting the broad market with it.
You end up with $15,000.00 net when you close the transaction. Let's say for the sake of argument that you don't get bottom on the metals and you pick up gold at $700 / oz, and silver at $10.00 / oz.
$7500 to gold, and $7500 to silver.
This nets you 10.5 ounces of gold and 750 ounces of silver.
Essentially if that is your game plan you are actually ending up with 233% more gold and 234% more silver than if you had just bought. Again, the risk analysis for your own money is all yours to have in the end, however given that nobody can really provide any real price objectives for gold except to use loose historical facts and such, and that we were 5 days from nailing the top in gold....
That's of course if that is your game plan. If you are like us you are going to be looking at some of the best companies in the world yielding over 10% - 15% by the time the market bottoms and that sounds pretty appealing from where I'm sitting....
The Dow is thus far still following that expanding triangle I drew at the end of the day yesterday and did indeed bounce off of the 50 EMA to move lower. It might make another run at the upper area of the triangle, however the probability is for one more solid new low before a larger corrective pattern forms.
Keep your heads out there.