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It's Time to Close Out Your Short Euro Trade

Currencies / Euro Jun 11, 2010 - 05:24 AM GMT

By: DailyWealth

Currencies

Dr. Steve Sjuggerud writes: Six months ago, in my newsletter True Wealth, I told readers it was time to bet against the euro:

This type of opportunity doesn't come along very often. It's time to bet against the euro. It's overpriced. A mountain of factors is against it. And a downtrend has been established – so it's time to make the trade.


I recommended the ProShares UltraShort Euro Fund (EUO). It's an exchange-traded fund designed to rise 2% if the euro falls by 1%.

My subscribers are up nearly 40% since December...


But today, the euro is in nearly the opposite position it was in back in December, as I'll explain. Now, it is time to close out our position and take our profits.

Back in December, investors were extremely optimistic about the euro and pessimistic about the U.S. dollar. Today, six months later, we're in the opposite position... The sentiment surveys show investors are at record levels of pessimism about the euro.

Traders are putting their money where their mouth is, too. Looking at the "commitments of traders," you can see they've bet against the euro in larger numbers than ever before – by far. The thing is, all these bets will have to be unwound... and the way they are unwound is with a "buy" order for euros.

Back in December, nobody talked about Europe's woes yet. I wrote about Greece back then and what was possible. But nobody was worried about Europe yet. Now, investors are worried... We're hearing talk about the potential collapse of the euro. Now that's pessimism!

Also, back in December, I showed how the euro was wildly overvalued – it was at least 35% overvalued versus the U.S. dollar. But now that the euro has fallen from $1.50 to $1.20, it is no longer wildly overvalued. It's fallen back to a "normal" range.

Could the euro keep crashing? Absolutely. Could it go to parity with the U.S. dollar... or even lower? Absolutely.

But we have made an extraordinary gain in six months, particularly on a simple currency trade. I am afraid we could see a violent rally higher in the euro, wiping out some of our profits. Then the euro will return to its downtrend.

Sizing it up now, with all the negative sentiment, and with all the bets against it, I'd be more inclined to buy the euro than sell it. I'd need to see an uptrend first, of course. But even then, the euro is not cheap enough. I typically only do currency trades when I have all my ducks in a row, like we did in December.

So it's not time to buy the euro. It's simply time to close our bets against it and pocket our big profits.

Good investing,

Steve

P.S. If you've been following my DailyWealth research, you've been in the "short euro" trade since January. That puts you up about 30%. Not bad for a six-month trade. But if you'd rather get my recommendations in "real time," for the full gains, consider coming on board as a True Wealth subscriber with a risk-free trial subscription. You can get the details here.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2010 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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