Crowded trades


“Markets are well-known for herding and that’s the story at the moment. Two big crowded trades are clearly government bonds and the US dollar. And history shows that when a herd gets too big, the risk of a stampede that splinters the throng only grows.”

Larry MacDonald

 I’m a fan of Larry MacDonald’s work. I’ve mentioned his Beartraps research here before. His quote, per above, suggests that the long bond and the USD are overbought. While I agree with his thoughts on one of those observations – the bond market-  I am less inclined to agree on the USD. Let me explain.


The long bond

I agree with Larry’s bond call. I’m short the long US bond. Well, actually, I bought an inverse long bond ETF in our newly incepted “VTAGS” strategy (ValueTrend Aggressive Growth Strategy). Take a look at the TLT chart below. Its parabolic move up to the old highs, and its rounded look in the neartermed momentum indicators tell us what we need to know about this being a crowded trade. Sure, moneyflow is good, and the longer termed MACD indicator is not yet rounding over. But, I think that (MACD) rolling over is a matter of when, not if, on this trade.



I’m not so bearish on the USD. Talk a look at the chart below. Yes, its fallen a bit recently. But the currency remains in an uptrend against the world basket of currencies. It wasn’t massively overbought by traditional standards. Its short stochastics momentum indicator was overbought—but RSI and MACD are fine. The short trendline needs to break into the $95 or lower area before I’d be concerned. I understand that Larry is more concerned about the positive sentiment surrounding the USD – and the probability of declining interest rates. But, the chart hasn’t broken yet, and it ain’t overbought – so I’m not prepared to declare a USD bear market coming just yet.




For those interested in the loonie, here is my take on the USD vs. the loonie: The weakness on the USD has caused a spike in the loonie. Its back to the top of its down trending trading channel. The long termed chart, which I’ve shown you on this blog site before—shows this tendency for the loonie to be in a long termed downtrend, and within a mid-termed down trending channel. This, all contained within that larger scope bear trend. So – spikes should be sold. That is, if you believe that the loonie will remain in a  longer termed bear.

As for the neartermed view -It’s not aggressively overbought on the weekly chart, but its most certainly overbought on the daily chart. Take a look at my “short termed timing system” signals for the loonie on the chart below. Way, way overbought in the neartermed.



For what it’s worth, I just sold some C$ and bought the USD for a personal building project I have going on in Florida. Investors who are looking at buying USD might consider legging in – which is what I am doing regarding my building project. I bought some today, and will see if there are any further signs of C$ strength. Depending on how it looks – I may do another buy-in of USD later in the week.


  • Hi Keith,
    What is a good inverse long bond ETF to buy?

    I may want to hold it for a few weeks, as such, is there one that minimizes the negative affects of holding it more than a few days?

    I really appreciate your feel for the intermarket relationships that exist in the complex world of finance.

    Best regards,

    • TBF is the one we own–single inverse, and I note that Carey’s comment mentions that he is trading TBT, which I believe is a leveraged inverse.

  • Just so happens I have “traded” in & out of TBT a couple of times starting last week. Sold remainder of position yesterday. I will be looking to get back in to build a mid term position and Wednesday’s pre-market action might be giving another good opportunity to do just that.

    Once again thank you for blogging straight forward observations


  • What ETFs do recommend to trade in various world currencies?

    • Michael–Investco (US exchanges) has a series of currency ETF’s–most (if not all) are benchmarked against the USD

  • What would be the suggested trades on TBT and/or TBF? I see they are both down again today. By the way, how are you feeling Keith? On the mend I hope.

    • Tom, i am still in the trade–bought it lower (when bond was higher) so I’m flat on the trade or near that. If it turns too negative, I’ll sell. But there are enough technical suggestions that it will be a decent risk reward probability.
      As far as my recover–thanks for asking. Today is the first day that I feel less pain when I put a bit of weight on my left leg. Still need crutches or a cane, but its showing improvement. Hope by next thursdays BNN show I can ditch the cane!

  • Would you say a buy at 78.2 cents for the year is pretty solid with DLR.TO?

    I think I am pretty much on the same page as you in terms of a stronger long term outlook for the U.S. dollar, although I follow Elliottwave technical analysis which may differ than your methodology.

    I don’t see the USDCAD going any lower than 1.27784 to be precise

    References I use for the setup and outlook on the USDCAD:


    • Thanks Geoff
      Yes, it think we can agree that there is movement left on the exchange D/USD but its not going to last forever.


Leave a Reply

Your email address will not be published. Required fields are marked *

Never miss another blog post!

Get the SmartBounce blog posts delivered directly to your inbox.



Recent Posts

Keith's On Demand Technical Analysis course is now available online

Scroll to Top