Trend Following: Consider Getting Short The Euro And Treasuries (FXE, TLT, TBT)

Two trends that have been working for awhile now are being short the Euro, and short U.S. treasuries. Although both of these trades are crowded, there is a good chance that short positions in these assets will continue to pay off. There is no doubt that the wolves are circling around the European currency. The bets against the Euro early in March were so large that the SEC actually sent notices to SAC Capital, Soros Fund Management, Greenlight Capital, and Paulson & Co requesting that they retain trading records and emails relating to the Euro. On February 26, The Wall Street Journal published an article about a secretive hedge fund dinner held at a private Manhattan townhouse where representatives of these firms and others discussed the idea of shorting the currency. Some have called this a "career trade." In December, the Euro was trading at $1.51 compared to $1.3396 today. In the currency market where traders often use 20X leverage, this move is dramatic - and likely to continue.

Yesterday, John Taylor, who is Chairman of the world's largest currency hedge fund, FX Concepts, said that he thinks the Euro will hit $1.20 by August. Some traders are even making bets that the currency could fall to parity with the dollar. Although there has been a very substantial move lower in the EUR/USD pair, this trade still offers a favorable risk/reward. It appears that a larger move may still be in the cards as momentum to the downside continues to accelerate. One way that stock traders should consider joining the short Euro trade is to buy puts in the CurrencyShares Euro Trust ETF (NYSE: FXE) or selling the shares short outright. The trend continues downward in this security. Over the last 6 months, the ETF has fallen 8.84%. On the three month chart, the shares have lost 6.76% and 1.66% in the last month.

Another emerging trend that could offer investors big rewards is rising U.S. interest rates. The consensus trade going forward right now is to be short Treasury bonds. The government continues to bring massive supply of debt to market, and we are beginning to see cracks in the Treasury market with two poor auctions taking place this week. As a result of massive deficits, huge supply, surging equity markets and inflation fears, there is a real chance that interest rates could move considerably higher in short order. The Treasury market right now appears to be a massive bubble, and prices are likely to fall sending yields higher.

One way of betting that the price of government bonds are likely to fall in the coming months is to buy puts on the iShares Lehman 20+ Year Treasury Bond ETF (NYSE: TLT), or shorting the shares outright. The ProShares UltraShort 20+ year Treasury ETF (NYSE: TBT) is another way to take a bearish position on the Treasury market. This is a leveraged ETF, so moves in Treasury prices are amplified in the returns of the security. In the last month, the TBT has gained 4.75%. In the last 6 months, the shares have appreciated 10.53%. This is a trend, and it is very likely to continue.

These two investment themes, Euro weakness and falling Treasury prices, are well established major trends right now. One rule that many legendary trend following traders recite is that "prices are never too low to sell, and never too high to buy." Both of these trades still present significant opportunity going into the spring, and will likely continue to generate profits for the world's savviest money managers.