Special Alert: Brexit Happened! Sell TBT

Amid much surprise, the Brits decided to leave the European Union (EU) and weather the resulting storm. Markets are quite volatile, but the majority of our open positions are improving.

So far, U.S. markets are back to the low end of the recent trading range above the 200-day moving averages for all major indexes. Our dollar and oil options improved. Our SPY spread improved and our long exchange-traded fund (ETF) positions are rising with the exception of ProShares UltraShort Lehman 20+ Yr ETF (TBT) sitting at a small loss.

When you receive this alert, sell TBT, which last traded at $33.24. While we are taking a small loss, in light of the decision yesterday by voters in the United Kingdom to exit the European Union, we believe this position will not improve substantially and is counter to our other positions. There will be a time to reenter this position. However, now is the time to cut our losses and preserve our capital.

The UUP and oil options are both sitting at or below their respective strikes, so any follow through should see a spike in volatility and give us more favorable conditions to sell them into strength. The SPY spread continues to decay away as expected, and we look to close out that trade, as well, if the risk/reward skew warrants it.

When we witness a short-term event that roils the markets for a day like this one, it will be all about following through. What happens next week will really matter.

We are not adding new positions today as we let the markets settle out, but our bias towards market weakness is paying off. Stay tuned, as market conditions are changing fast and we want to keep our momentum going.

Sincerely,

Doug and Tom