Friday, February 4, 2011

Very Quick Update on Closing one Open Position

At the end of August last year I published This chart:

And intiitated a long position on TBT (a short position on treasuries) due to the terminal pattern and nearly unprecedented optimism.

Since that time US Treasuries have significantly fallen in value, even as QE2 put a guaranteed bid on the billions of dollars per day traded in these bonds.

As of today, optimism is fairly negative towards treasuries even as it is extremely elevated (setting records dating back 20 and even 50 years, by some indicators!) towards stocks and commodities.  Now is a ripe opportunity to close out this trade, both the options contracts and the actual holdings of TBT that were initiated 6 months ago.

I have sold the shares of TBT at $40.85, and the March 2011 $30.00 calls purchased at $3.80 for $10.65.  The gains realized on acutal stock are $7.15 per share for 21% after trading fees, and a very nice 180% gain on the options plays.  It is possible that TBT could have a final breakout, however I think that if the market turns in the next week that treasuries are going to rally hard as most investors are taken completely off-guard.

Another interesting tidbit is that Hedge fund inflows in the fourth quarter of 2010 were $9 billion over the previous all time record of $140 Billion set back in June 2007 (just a few weeks prior to the Dow Composite index and within months of virtually every investment market in the world rolling over and eviscerating over $10 Trillion of "wealth" in a matter of months versus the years it took to build.  Investors are all in, belief in the rally is fully charged, and the time is ripe for a historic reversal. 

Although the numbers in the economy are back up to levels seen at the peak in GDP, the wealth transfer has shifted trillions from productive entrepreneurs in soceity to wealth-destroying operations directly run or indirectly overseen by the State.  The foundations supporting this belief are even more fragile than in 2007 (not just debt this time, but the belief that some sort of "benevolent overlord" can manage the economy and direct capital in a matter that is a net benefit to society.)  This belief will not only be challenged but completely shattered over the coming years, especially in regards to the Federeal Reserve's "control" over the economy, interest rates, and total money supply. 

I'll be in touch soon.  Hope you're enjoying the snow - we have more than twice the usual winter where I hail from (And everyone was so invested in global warming just a few short years ago...).



P.S. I don't know if anyone has paid attention to NFLX (kind of hard to avoid, given its manic cannon-launch to the stratosphere over the past year or so.)  It is forming a terminal pattern even now and is due for an extreme set-back in the very near future.  If you have the cash available, and the stomach for it, it looks like an ideal short-sell.

It's currently trading at nearly 40x its book value and just under 75x it's earnings.  It pays no dividend.  Have fun with it!  (it's also a weekly parabolic rise starting around $18.00)  Moving average and momentum internals are making lower highs even while the stock is rocketing up, and Money Flow topped out in the initial 150% run off the lows in 2009.)  I'm recommending a small, speculative short sell position at current levels.  That being said, the current channel it's running and the terminal pattern currently allows a throwover to the $235.00 -$240 level, although it is not required and the trade is fantastically one-sided.  Here's the chart:

Best of luck out there.  I'll be responding to the load of emails and comments on gold and silver shortly.