Fear Trade Back On

Yesterday’s big sell off caught some people by surprise.  Obviously, if you’ve been following my work on my radio show or on this blog, you know we’ve been prepared for a sell off.  Actually, since we were shorting on the way up the past couple of weeks, we were up about 1% yesterday on our equity portfolio.  But, others weren’t as fortunate.  Equities sold off over 5% and the fear trade seems to be back on.  So, up goes bonds and down come rates.  Many of you have been short treasuries as I have for various reasons.  Maybe you’re scared of the government printing too much money, maybe you think treasuries are a bubble.  Whatever the reason, it’s been a good trade.  About a week ago, I suggested taking profits on TBT (the ultrashort treasuries ETF).  I told you I was going to keep my short treasuries trade on for a while for other reasons but if I was trading it, I’d be looking to lock in profits.  The reason why was purely technical.  Well, we’ve had a pullback the last two days as investors have run from equities and gone into treasuries.  Feels like the fall/winter of 2008 all over again, doesn’t it?

But, now what?  Will this trend continue?  I think TBT is technically at a place we should see a further rally meaning rates will go up.  Here’s my reasoning.  We have TBT sitting on its 20-day moving average.  In early January, TBT investors took some profits, it pulled back to the 20-day moving average, and it was up again.  We’re there again.  Secondly, $45 is a key technical level for TBT and it should hold there.  If it breaks this level, then it is more than likely heading lower.  So, were at a critical fork in the road for TBT & interest rates.


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February 2009
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