The Fed and the Kneejerk; plus new recommendations on BOM and ZSL!

One asset that kept its post-FOMC momentum was US Treasuries. Price moved relatively sharply lower on Wednesday; and somewhat on Thursday too.

Why, after the Fed promised to purchase Treasuries to keep long-term interest rates low, would Treasury prices decline and yields go up? It is quite perverse, but it's not a complete surprise.

Announcements of QE1 and QE2 were not kind to Treasuries either. But the kneejerk slump in Treasuries after Q3 was soon reversed, and the price of the 30-year bond is still higher than it was at the QE announcement three months ago.

So why this action?

Well, it would seem the driver is a fresh rethink of inflation expectations. But ...

Commodities Essential. 14 December 2012

Trade Essentials.

I think copper is set-up for a short-term pullback. I think using the PowerShares DB Base Metals Double Short ETN (BOM) is a way to play for such a move. Here are the specifics of what I recommend you do now.

BOM (Last price: $11.80)

Buy shares of PowerShares DB Base Metals Double Short ETN, symbol BOM, at $11.80 or better, to open. Then place an order to SELL ALL your shares of  PowerShares DB Base Metals Double Short ETN, symbol BOM, at $11.40, STOP; this order is good till cancelled.

Then, use the ProShares UltraShort Silver Fund (ZSL) to play for a breakdown in silver:

ZSL (Last price: $44.42)

Buy shares of ProShares UltraShort Silver ETF, symbol ZSL, at the market. Then place an order to SELL ALL shares of ProShares UltraShort Silver ETF, symbol ZSL, at $41.47, STOP; this order is good till cancelled.

If you prefer to steer clear of leveraged ETFs, you can substitute the iPath DJ-UBS Copper ETN (JJC) and the iShares Silver Trust (SLV), respectively, by selling short. This assumes, of course, you have the ability to 'sell short' in your trading account.