Fund Offers Bondholders Triple the Protection

by Sam Collins | July 15, 2013 7:05 am

Direxion Daily 20+ Year Treasury Bear 3X Shares (TMV[1]) — This fund moves opposite to the daily performance of the NYSE 20 Year Plus Treasury Bond Index, seeking to gain 300% of the inverse of the performance of that index.

The price of Treasury bonds falls when the Fed increases interest rates, and this ETF could rapidly appreciate when the Fed “tapers” its QE policies. Since history has shown that it is usually better to go with the Fed’s policies, this appears to be an investment that could offset the negative impact of holding bonds.

The Trade of the Day last recommended TMV on June 20[2], at $ 64.39, as a trade with a target of $75. Since then, this leveraged ETF jumped to a high of $71.61 following a gap up from $64.90 to $69.31. On Friday, it fell enough to cover 50% of the gap with its low just above the 20-day moving average at $66.16.

This area appears to be an ideal place to add new positions, since it has previously found support at the 20-day moving average (green line) and the red-dotted near-term support line. A new position may be taken at $66.50 or lower with the trading target still at $75. Longer-term buyers may want to hold the less volatile ProShares Short 20+ Year Treasury (TBF[3]) as a hedge against a bond portfolio, since it should provide 80% protection against lower bond prices and higher interest rates (see the June 12 Trade of the Day[4]).

Inverse and leveraged funds are not for all investors. These ETFs carry unique risks and use complex investment strategies. The annual expense ratio of TMV is 0.98%.

TMV Chart
Click to Enlarge

Chart Key[5]

  1. TMV:
  2. on June 20:
  3. TBF:
  4. June 12 Trade of the Day:
  5. [Image]:

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