ETF’s To Consider With Higher Interest Rates

2016-12-15 | Simpler Trading Team

Yesterday the Federal Open Market Committee (FOMC) raised the prime short term interest rate 25 basis points or 0.25%. They also announced that they are planning for three more increases in 2017. This is only the second time the FOMC has raised rates since 2006. Let’s take a look at three ETF’s that may benefit from higher interest rates.

The first one is ProShares Trust (TBT), an inverse 20 year Treasury ETF. Notice, that price appears to have bottomed out in July when the Treasuries hit their highs. Then there was a consolidation that finally broke out in early November. Also, the 100MA has turned up, and the Squeeze fired long 4 days ago.

TBT 100MA Squeeze Fired

Next up is ProShares Trust II (EUO), an inverse Euro ETF. You will notice the chart pattern is very similar to that of the TBT. The 100MA has turned up after a consolidation period and it broke out in early November.

EUO 100MA turned up

The last one is Invesco PowerShares (UUP), a U.S. Dollar ETF. It too has a similar chart patter. Price has broken out of the consolidation, and the 100MA has turned up.

UUP 100MA turned up

Inverse ETF’s like TBT and EUO are good trading vehicles to trade in an IRA or 401K accounts that do not allow you trade short. Just remember that inverse ETF’s are OK for swing trading. But they should not be used for buy and hold strategies, due to the daily rebalancing. They work best in shorter durations, and with price moving in one direction

I hope this helps,

Simpler is Better.