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It's Time to Take Profits if You're Short the EuroBy
Monday, September 22, 2014
In June, I told you the euro was about to be "trashed."
The trade lined up perfectly.
Normally, major currencies like the euro don't have big moves against the dollar. But if you took my specific advice, you should be sitting on a 9% gain today.
Now it's time to lock in that gain.
Let me explain...
Our thesis for betting on a lower euro was simple...
European Central Bank President Mario Draghi's mission is to boost the European economy. And much like Ben Bernanke a few years before him, his best plan of action was to cut interest rates and print money... "trashing" the euro in the process. Here's what I wrote back then...
In addition, at that time, investors all thought the euro would continue higher. Specifically, "Trader Optimism" was at multiyear highs (as measured by my friend Jason Geopfert of SentimenTrader.com). The contrarian bet was on a lower euro. We made that trade, with leverage, with the ProShares UltraShort Euro ETF (EUO).
EUO is up 9% in the three months since then. And now it's time to close the trade.
Why? In just three months, the entire story has changed.
The euro has gone from extreme optimism (which made us want to bet on a lower euro), to extreme pessimism now.
You can see this in the chart below. It shows the Commitment of Traders on the euro. Check it out...
 The Commitment of Traders – or COT – is a weekly report that shows the real-money bets of futures traders. When the COT shows traders are all betting on lower prices, the euro tends to bounce. That's exactly where we are today. Sure, the euro could fall a bit more from here... But sentiment in the euro is now at a negative extreme – exactly opposite of where we entered the trade. And that shows that we've already made the easy gains. There's no low-hanging fruit left here.
The best thing to do now is to lock in profits. So that's what we'll do.
Shares of EUO are up 9% in just three months. Take it!
Good investing,
Steve
Further Reading:
Although he's pulling out of his euro trade, Steve still likes European stocks here. And he recently told DailyWealth readers the "absolute best way" to buy them. Click here to find out.
Steve's colleague, Brett Eversole, likes the looks of one European country in particular. "One country in particular stands out as the absolute best value," he writes. "And while today is a scary time to buy, it could lead to big gains." Click here for the full details.
Market NotesNEW HIGHS OF NOTE LAST WEEK
Berkshire Hathaway (BRK-A)... Warren Buffett's holding company
Moody's (MCO)... ratings agency
Allstate (ALL)... insurance
Morgan Stanley (MS)... financial services
M&T Bank (MTB)... bank
Wells Fargo (WFC)... bank
Discover Financial (DFS)... credit cards
Yahoo! (YHOO)... search engine
Comcast (CMCSA)... cable TV
Time Warner Cable (TWC)... cable TV
Southwest Airlines (LUV)... airlines
Marriott International (MAR)... hotels
Hyatt Hotels (H)... hotels
Medtronic (MDT)... medical devices
CVS Health (CVS)... drug store
Abbott Laboratories (ABT)... Big Pharma
Johnson & Johnson (JNJ)... Big Pharma
Eli Lilly (LLY)... Big Pharma
Amgen (AMGN)... biotech
Lockheed Martin (LMT)... "offense" contractors
Northrop Grumman (NOC)... "offense" contractors
Raytheon (RTN)... "offense" contractors
Altria (MO)... cigarettes
Kohl's (KSS)... department stores
Molson Coors Brewing (TAP)... beer
Energizer Holdings (ENR)... batteries
U.S. Steel (X)... steel production
Lowe's (LOW)... home improvement
FedEx (FDX)... shipping
Sherwin-Williams (SHW)... paint
Stanley Black & Decker (SWJ)... tools
Keurig Green Mountain (GMCR)... expensive coffee machines
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