USO up 26% in a week. Time to sell?
Not necessarily. USO still has upside. It might experience some short term profit taking, along with the rest of the market, but this is a great hold until oil gets to about $60/barrel. At that point it could hit a trading range and could trade sideways for a while, but we’re still at $46, so hold onto it. I recommended keeping an eye on this ETF back on November 30 and I got into it when oil was at $37. If oil goes down again, jump into it.
The USO play is safe because it is inflation protected, will participate in an economy that gets better, or a market that gets better. The only scenario where USO won’t do well is when the economy sucks, the market sucks, and the economy is also experiencing deflation. We just had that. From September to November was exactly that. I am not saying we won’t see an economy that sucks and a market that sucks. But the likelihood of more deflation is extremely low with the recent amount of money infused into the system and Fed Funds at 0-.25%. Its at 0-.25% because it can’t actually go to 0%, because unlike car salesmen who will give you 0%, the Fed isn’t selling you a car, which will absorb the interest cost of the 0% offer.
Also, I just got into TBT, because Treasury prices are at record prices. When you watch treasury tickers they usually show the yield, which is at record lows. When you buy a bond for 110 with a face value of 100 that yields 5% interest, you are paying a premium of $10 on it and therefore are receiving a lower interest yield, which could be something like 4% (I’m not calculating this this is just an example). So if you look at the price of treasury bonds right now you’ll see that they are at record highs and yields are at record lows.
The TBT play is also based on the amount of debt and leveraging that the government has. If they have to issue more and more debt, and the demand stays the same, then the price will go down, and the yield will go up. I see this as a very likely scenario, considering recent amounts of debt the government has taken upon itself. Therefore I feel very safe with the short treasury play.
Yes, you can also safely short the hell out of the S&P because the market is crazy right now. We are getting bad economic data like its cereal for breakfast. I think we are currently experiencing a bear market rally run up and it would be a great idea to hedge your portfolio with SDS, which shorts the S&P 200x and is down from a high of 127 at 66.
I own USO, TBT
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