you mean NOW?

In my last post I talked about the fundamental reasons why the TBT/TLT trade should work and explained some of the risk involved. I've been asked if TODAY was the time to buy - the answer? not yet.

(click on the chart to enlarge)




The chart shows opening the trade July 8th at $4.18 ($102) and closing it July 15th at $13.78 (+$2,748) for a profit of $ 2,646. These are buy-to-open and sell-to-close points for a number of reasons including:

OPEN
- the pair was getting very close to its 200 day moving average
- RSI touched the 5% level

CLOSE
- the pair had gone above both the 50-day and 20-day moving average
- RSI touched the 95% level

Looking back on this trade, I added a PairCorrelation study. Note that the ETF pair was correlated below -0.95 and was getting close to exceeding that threshold. A perfect inverse correlation would be -1.00.

What did you ask me? Oh yes, is it time to open the trade?

I said no because all the moving averages are converging and the RSI is not yet below 5%. I like the fact that the correllation is still below -0.95, but that's not enough. As they say, it's important to wait for confirmation.