April 1, 2010 – The Most Overcrowded Trades in the Market

Featured Trades: (GLD), (VIX), (TBT), (TBF), (DRR), (FXB)


2) The Most Overcrowded Trades in the Market. The boutique New York stock broker, ConvergEx, produced a list of the five most over crowded trades in the market today. Here they are with my comments:

1) Long gold (GLD): when half of the late night TV advertising is devoted to the fortunes to be made in the barbaric relic, you know this trend is long in the tooth. This is why I think we are in for a prolonged period of digestion before the next leg up.
2) Long volatility: In the last year the volatility index (VIX) has traded in a 10%-89% range, and today it closed at 17%. I'll go with this one, as it is a great insurance policy for any long you may have.
3) Short long dated Treasuries (TBT), (TBF): truly the great trade of our generation, but you may have to first endure a prolonged period of sideways grind as long as short rates are at zero. There is a failed Treasury auction in your future.
4) Short the Euro (DRR) and the pound (FXB): I'm betting on shorting the yen.
5) Underweight health care stocks: I don't follow the sector, but wouldn't bet against them here. These people are sharks and will prosper, no matter what Obama does to health care.

crowd.jpg picture by madhedge