Interest Rates

[gordoffh]

Not sure how many follow Bill Carrigan a technical analyst but last week he made a call on a bottom in interest rates. See Toronto Star article below

http://www.thestar.com/business/article/1236668--getting-technical-the-bond-selling-of-a-generation

 

He also talked to some extent on the topic a day ago on BNN and his top pick was TBT.

Market Outlook: Listen to the markets and tune out the noise surrounding the euro crisis, a possible U.S. recession and a slowing Chinese economy. There are many technical positives to drive the markets higher:

 

Diverse selection of recent new 52-week highs: Some examples are Berkshire Hathaway, Inc, Canadian Pacific Railway, Chevron Corp., General Electric Co., Monsanto Co.., M&T Bank Corp., Vail Resorts, Inc., Pfizer, Inc., Target Corp. and West Fraser Timber Co. Ltd., all representing diverse sectors of the economy

 

Positive market breadth: The NYSE advance / decline line which leads the index price at mid week broke to a new all-time high

 

The fear trade is abating: The yield on the US 10-year T note has spiked to an unsustainable low and this has the iShares Barclays 20+ Year Treasury Bond ETF (TLT) in a topping phase

 

Two key TSX sectors have printed classic bottoms: Both the TSX Materials and the TSX Global Gold sectors have completed a nasty 14-month bear that followed the bull market advance of early 2009 through late 2011. The nasty bear has now retraced 62 percent of the 2009 through 2011 bull market advance which is a perfect Fibonacci retracement number. Key Fibonacci retracement numbers are 38.2 percent and 61.8 percent

TOP PICKS:

ProShares UltraShort 20+ Year Treasury (TBT NYSE) – bought at $15.47

A bullish falling wedge twice the daily inverse of the Barclays 20+ Year U.S. Treasury Index or the TLT ETF which has built a bearish rising wedge.

 

Now based on this I made a purchase of TBT on tuesday but sold out thursday after reading about the pitfalls of investing in this type of ETF. I actually read some negativity on this board on another thread. Now I am curious as to whether an investment in TBT based on above is something others  are contemplating. Is holding an etf like TBT for 6 months to a year ,if we are at a bottom a problem.

[Guest hellsten]

Is holding an etf like TBT for 6 months to a year ,if we are at a bottom a problem.

 

I think it was after reading Contrarian Investment Strategies by David Dreman that I learnt that:

- even if you're right, i.e. you buy the correct leveraged ETF and the market goes your way, you might still lose money or earn less than if you had bought an unleveraged ETF

- the longer you hold a leveraged ETF the worse they perform

 

Investopedia has written about the topic too:

http://www.investopedia.com/articles/exchangetradedfunds/09/broken-leveraged-etfs.asp#axzz23FjqQGAE

http://www.investopedia.com/articles/exchangetradedfunds/07/leveraged-etf.asp#axzz23FjqQGAE

 

In the same book, David Dreman lists 41 contrarian investment rules. Rule number 1 is "do not use market timing or technical analysis".