Trade Idea: PowerShares DB US Dollar Index Bullish Fund (UUP)

01/29/2018 3:30 pm EST

Focus: ETFS

Landon Whaley

Editor, Focus Market Trader

As long as UUP trades below $24.14, then new short trade ideas can be initiated on rallies to $23.38, or higher. Depending on how much room you want to give this trade idea, use a risk price between $23.49 and $23.74, writes Landon Whaley of Focus Market Trader.

The PowerShares DB U.S. Dollar Index Bullish ETF (UUP) declined 1.7% in the week ending January 26, and has lost 3.2% for the year.

chart

Fundamentally, UUP’s primary catalyst is the latest Fed rate hike, which is bearish.

Quantitatively, UUP’s performance is all downside when the Fed raises rates. The U.S. dollar averaged a negative return in the six months following each of the last four Fed decisions to lift rates.

Our quantitative framework is confirming this bearish bias.

Social, our trend indicator, has been in hangover mode since December 20, indicating a decidedly bearish downtrend.

Momo, our momentum indicator, is at the lowest levels since early 2016 and becoming more bearish by the day.

Barometric, our proprietary indicator of buying pressure, is registering the lowest reading since last August.

Behaviorally, investors are already hip to the bearish tone of the USD following a Fed rate hike, but the truth is they’ve been bearish for a while now. In fact, UUP has seen $52MM in outflows during 2018, while investors in greenback futures market remain historically bearish.

All three Gravities are bearish, and so is our bias.

Trade idea:

As long as UUP trades below $24.14, then new short trade ideas can be initiated on rallies to $23.38, or higher.

Depending on how much room you want to give this trade idea, use a risk price between $23.49 and $23.74. If UUP touches your risk price, even for a second, then you should exit any open trades.

If the trade moves in your favor, then you could consider using the price range between $23.19 and $23.03 as your profit target.

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