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It's Time to Close Out Your Short Euro Trade

By Dr. Steve Sjuggerud
Friday, June 11, 2010

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,

Further Reading:

You'll find Steve's first "short euro" DailyWealth essay here: It's Time to Bet Against the Euro. And he "pounded the table" on the idea here: How I'm Betting Against the Euro. If you followed his advice, you're pocketing some solid gains today.
For Steve's next big winner, check out his essay on where to find a safe, 17% dividend. Right now, this company is in a "Goldilocks" situation – there's almost never been a better time to be in this business, which means it's throwing off huge cash payments to shareholders. You'll find all the details and the stock to buy here: Where to Get 17% Interest – Safely.

Market Notes


One of our proprietary DailyWealth "investment systems" is signaling "buy" right now.
Back in March, we introduced a foolproof system for making safe long-term investments. Our system involves just one stock, Johnson & Johnson (JNJ). Why did we choose JNJ for our "system"?
Well, JNJ has all kinds of attributes the sophisticated investor demands when putting money to work. The company owns a suite of world-class brand names – like Listerine, Band-Aid, Neutrogena, Splenda, Rogaine, and Tylenol. It earns high profit margins. It sports a bulletproof balance sheet. And its dividend payout is as consistent as the sunrise.
JNJ is such a dominant, wonderful business, its shares tend to decline significantly only when investors freak out and lose faith in the stock market, capitalism, and the Western way of life. Such declines occurred in 2000, 2002, and 2008. All were opportunities to load up on cheap JNJ shares.
As you can see from today's chart, JNJ shares have suffered a small "freak out." Broad market concerns have pushed the stock down from its 2010 high of $66 per share to $59. This leaves the company trading for around 12 times earnings and sporting a dividend yield of nearly 4%. For those with a long-term time horizon, this is "back up the truck" time.

Johnson & Johnson has suffered a big short-term decline

In The Daily Crux

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