Chart Review: TIP, TBT, EWZ

While the general stock market just keeps crawling steadily upward, individual stocks continue to produce some very interesting, and very tradable charts. For example, over the past several months, I have been able to identify many valuable breakouts as well as some breakdowns. The three charts in this post are not directly related, but I am combining them here for convenience. I may do more of these in the future

iShares Barclays TIPS Bond Fund (TIP)
When I first ventured into TIPS, I thought it had a very simple relationship to inflation expectations: an increase in the price of TIPS equals an increase in inflation expectations. But when TIP reached multi-year highs for the first time last summer, a debate about the meaning of the price move ensued that taught me that the dynamics of TIPS are not quite that simple. I sold my holdings into that debate (and into the Federal Reserve’s TIPS-buying program), figuring that the downside risks far outweighed the upside opportunity.

TIP continued to rise almost 5% before peaking two months later. Fast forward another four months and TIP has finally dipped below my selling price after breaking down from key technical levels. I finally decided to buy into this dip on Wednesday (after commissions, I think I saved only a small amount of money while missing out on additional dividend payouts). When I rolled into TIP during the first round, I was buying simplistic inflation protection. This time around, I am looking for some inflation protection, but I am also positioning for what I think will eventually be another rally in these bonds. If I am fortunate enough to get much lower prices, I will “back up the truck” as they say. At a 2.47% yield, I am also fine just sitting in the current position if TIP goes nowhere for months on end. Most importantly, I am getting more serious about implementing some more diversification for the portfolio, similar to my decision to finally buy some, gasp, muni bonds (it helps that I have a friend who keeps pestering me about this!)

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TIP is breaking down but could find some support at current levels
TIP is breaking down but could find some support at current levels

ProShares UltraShort 20+ Year Treasury (TBT)
The apparent top in bonds has perhaps produced one of the better and more precise timing calls in a long while, at least since the small group of folks who called for a bottom in stocks in late March, 2009 (even the President nailed that bottom).

I missed that bottom in stocks, but I was chomping at the bit for the top in bonds. The ride in TBT, the inverse of long-dated Treasuries, has been a great one. With over a 33% gain from its bottom in late August and confirmed bottom in October, TBT is actually out-performing the S&P 500’s 27% gain from the moment Federal Reserve chairman Ben Bernanke announced the printing presses were warming up again. When TBT soared on record one-day volume following the Fed’s official announcement of QE2 in November, the bottom in TBT looked firmly secured.

At this point, I am thinking TBT has perhaps one more run left before the downside risks discourage me from trying to wait out any further upside opportunity. TBT broke out to fresh eight-month highs this month, so the next rally may have already started. Regardless, I am looking for the point to sell, rather than buy….although I have found a good number of short-term trading opportunities in the day-to-day and intraday volatility of TBT.

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The latest breakout for TBT may have signaled another coming rally
The latest breakout for TBT may have signaled another coming rally

iShares MSCI Brazil Index Fund ETF (EWZ)
When EWZ first broke below its 200-day moving average (DMA) in late January, I speculated that the bounce in EWZ would be temporary. On Wednesday, EWZ confirmed my suspicions and finally closed below its 200DMA. EWZ is now about 13% below its closing peak from November, 2010. I am now looking to revive the “20% correction” strategy for buying EWZ. This strategy implies a buy on EWZ around $65. Given potential support at $66, I may buy a little early (assuming EWZ does indeed trade down this low). I still like Brazil as my favorite emerging market play, but the risks in Brazil are higher than ever as a new President has taken office, inflation is on the rise, and the country struggles with controlling capital inflows.

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EWZ has broken down and could be headed toward another 20% correction
EWZ has broken down and could be headed toward another 20% correction

*All charts created using TeleChart:

Be careful out there!

Full disclosure: long TIP, TBT, and MUB. Long SSO puts.

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