Trade Alert: Buy Put Options on the British Pound!

Few people realize that Britain has two ways it can leave the European Union (EU). One is through a successful referendum tomorrow to leave the EU. But the other exit door isn’t being talked about all that much.

And yet, it’s so simple: The Bank of England simply devalues the heck out of the British pound, putting its assets on sale, but also effectively trading its way to strong economic growth which will fly in the face of the oligarchs in Brussels who want to effectively and authoritatively control every country in the European Union.

I’ll come back to this in a minute. First, let me tell you what I think is going to happen tomorrow. Of course, it’s a pure guessing game, but we do have some “tea leaves” that can help us out.

First, all of my indicators remain very bearish for the euro. That’s true no matter which way the vote goes tomorrow. The only difference is degree. If the “stay” vote wins, it’s likely the pound sterling will get hit hard and we’ll see a short-term bounce in the euro, with the emphasis on “short-term.”

On the other hand, if the “leave” vote wins, there may be a relief rally for the pound, but it will fizzle as soon as the majority realize that Britain’s future economic growth will forever be hampered, that Britain has essentially surrendered its sovereignty.

The next course of action will be for the Bank of England to devalue the pound against the euro, not only to flex its muscles, but to make the UK more competitive within the EU (and globally).

By the way, in both scenarios, the dollar comes out a big winner.

Second, my indicators are also bearish for the pound. It has staged a very meagre bounce recently, but remains well within the confines of a major long-term bear market. Shorting the pound on a bounce – as you would be doing with the trade I am about to recommend – gives you an ideal entry point.

Third, gold is flashing cues that the vote will be on the “stay” side, which should be very bearish for gold. Gold has been completely unable to take out strong overhead resistance at the $1,307 level on a closing basis. If the “leave” vote were truly ahead, gold should be stronger than it is.

But it’s the opposite: As I pen this issue, gold is trading just below a daily sell signal at the $1,268 level (August futures). A closing below $1,268 today, though not a major sell signal on my systems, may be enough to tell us the vote will be on the “stay” side of affairs.

Fourth, there have been no changes in my AI timing models on gold. The potential for a “crash-like” move in gold to occur between now and the end of this month, spilling over into early July, still remains.

Fifth, additional supporting evidence comes from the most recent Commitment of Traders report, which again, shows a very bearish set up for gold – with massive amounts of speculative longs in the futures market, a very bearish sign. Spook that herd with a “stay” vote, and gold could crash more than $100 down to major support bands in the $1,160 area in a heartbeat.

And finally, all of my indictors and models remain bullish for the U.S. dollar. That would put further downside pressure – not only on the euro – but on the pound as well.

Hence, my trade recommendation for today:
Short the British pound using put options on the
CurrencyShares British Pound Sterling ETF, symbol FXB.

Unfortunately, there is no alternative inverse ETF for this security, so if you are not trading options, you should skip this trade.

Here are the details for the trade:

“Good for today only” means exactly that, it is NOT a good-till-cancelled order. If you are not filled by the close of trading today, your broker will immediately cancel the order. I do not want you trying to buy this put option tomorrow, in what could prove to be a wild day.

Also note: Stick to my limit price of “$4.20 or better” and do not pay up or chase the put option.

Hold all other positions and related stops. I’ll be in touch again tomorrow, perhaps even sooner!

Best wishes, as always …

Larry