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Showing posts with label UUP. Show all posts
Showing posts with label UUP. Show all posts
Tuesday, October 27, 2009
Has the vice started tightening on the UUP shorts? Granted the move today was not huge, the UUP bid most of the day with daily volume being 4,060,000 higher than average of around 1.8 mil. The clear inverse relationship between the UUP and S&P500 is demonstrated by the chart to the left. You see as the UUP(blue) traded up, as equities(red) came under pressure. If you take volume into consideration, you can argue UUP moved FIRST then equities moved inversely. I personally did not watch trading close enough to see this anomaly, but one thing is true, if one moves the other moves opposite.
Over time the relationship can become inverted on a daily chart, I.E. fall of 08' when traders flocked to the dollar as the "safe trade". This trade moves like this because the dollar is clearly front and center in traders minds and they know the USD rules the roost. Traders who are in these markets every day are tired of the same grind and are looking for volatility to show its head again, not because traders want the market to fall, they want the market to come to it senses. The USD is clearly the catalyst which can snap this market back into reality.
Monday, October 26, 2009
Today the price action (mainly on the bid per NYSE tick) on the S&P500 & Nasdaq indicated a clear inverse correlation between the dollar and equities. Obviously the connection has always been part of the equation, what has not been as obvious is how many traders are watching this trade. As i posted earlier today on twitter, UUP showed large volume spikes today following the rumor of S&P downgrading the banking sector. If you look a bit further out you can see UUP has been in a downtrend finally finding some historical support down here around 22ish. As Roubini mentioned a dollar collapse is a lot less likely than a dollar rally. If this is the case profits from the rally we begin to be taken aggressively out of fear of, this will create great sell side pressure on equities and commodities alike.
This timing is almost perfect, the rally has been way over extended, near 60%, we are exhibiting price action (tight ranges, easier to fall than to rise) in the index's which indicates a toppy environment. I am basing this off of most good news is being sold in relation to earnings, as NOT good enough. The only example i have which goes against this hypothesis is Amazon, though I think this was more of a market momentum trade than fundamental. Amazon will at some point have to trade down a bit as profits are taken on a nearly 45$ run in less than a week.
Anyway, back to the my point.. UUP has had nearly zero volume on the buy side in months, today it woke up the market sold off on rumors. Rumors are moving the market, the financial sector still has systemic risk associated, I.E. Bove downgrading WFC sent the market into a tizzy, today the S&P downgrade rumor sent everyone heading for the bid.
These rumors have not even been substantiated, what happens when something real hits the market? I think as the dollar firms up we are gonna see the market become sell side again. I could be wrong but if you use these signals to help formulate your trading plan you will be rewarded.
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