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Bruce has been involved in the financial markets for over 20 years as a trader, analyst, trading educator and financial writer. Core expertise is in the areas of investing, trading, technical and fundamental analysis, as well as corporate development and strategy. Bruce writes a weekly column... More
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  • Continued Bearish Indications For UUP – Dollar Index ETF 0 comments
    Oct 7, 2012 7:07 AM | about stocks: UUP

    Continued bearish indications for UUP - Dollar Index ETF

    Five weeks ago the PowerShares DB US Dollar Index Bullish Fund (NYSEARCA:UUP) ETF broke down out of a long-term bearish wedge price formation. The pivot occurred on a decline below the lower uptrend line of the wedge, which happened to coincide with a break below the 50 period simple moving average (sma) on the weekly chart. That move followed a decline from resistance of the weekly 200sma six-weeks prior - the top of the wedge.

    (click to enlarge)UUP Weekly ChartThe decline that followed to $21.57, reached four-weeks ago, took UUP to below a long-term support level, which is indicated by the blue horizontal line and arrows on the weekly chart above, and completed a 61.8% Fibonacci retracement of the uptrend off the May 2011 low of $20.84.

    UUP remains in a long-term downtrend, and the recent high, top of the wedge, could not even get close to the multi-year downtrend line. That high was a bit shy of completing a 50% retracement of the prior downtrend, found resistance at the 200sma, and reflects underlying bearishness within UUP. In other words another lower swing high has completed and reflects acceleration in the trend given the steeper angle as seen by the internal downtrend line in the weekly chart below.

    (click to enlarge)UUP ETF Weekly Chart

    The above analysis of the long-term patterns points to further declines in UPP over time. As we move into a shorter time frame next, by looking at the daily chart, additional bearish signs are seen.

    (click to enlarge)UUP Daily Chart

    First, note that the top of the wedge completed with a head & shoulders reversal pattern. When UUP broke below the neckline selling accelerated. Subsequent to UUP finding support at $21.57 four-weeks ago short-term profit taking rallied the ETF up to long-term resistance ($21.94), previously support, as represented by the horizontal blue line on the chart. The ETF attempted to break above that resistance area on four separate days and failed.

    A bearish flag pattern formed over the past several weeks with a bearish trigger occurring last Thursday. On Wednesday of last week the 50sma crossed below the 200sma on the daily chart, another bearish confirmation.

    The bearish flag is negated for now if UUP can close above $21.94 in the near-term and then gains further strength. A rally up towards resistance of the lower trend line of the wedge and breakout pivot around $22.23 is then possible. However, given all the bearish indications discussed above a decline to lower support levels looks likely.

    The target from the bearish wedge price formation is the beginning of the pattern, which is around $20.87, just shy of the long-term low of $20.84. When calculating a target based on the short-term pattern of the flag there's almost an exact match. The price objective based from the flag pattern is approximately $20.81 [22.54 - 21.57 = 0.97, 21.78 (flag pivot) - 0.97 = 20.81]. (etf-portfolios.com)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: UUP
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