On 10/18 we posted a note to our Seeking Alpha Instablog titled, "UUP and GLD, Like Looking In a Mirror?" (http://seekingalpha.com/instablog/336795-street-one-financial/102241-uup-and-gld-like-looking-in-a-mirror), commenting on the recent price action and options markets activity in both ETFs.
Initially on 10/11/10, market technician David Chojnacki noted the rally in GLD (SPDR Gold) and related Gold ETFs such as IAU (iShares Gold) and SGOL (ETFS Physical Gold) and stated in our S1F ETF Daily ""as we near resistance areas, take or protect some profits." Amidst the recent correction in GLD, which has fallen about 3% from its recent highs, we have seen consistent put buying from institutional players in notable size across various months. The put buying could indicate that speculators are positioning for a reversal in the surge in Gold, or perhaps long term holders of GLD are protecting or locking in profits that they have in the underlying ETF going into year's end in the case of such a reversal.
Chart for GLD:
As the rally in Gold has tapered off to some degree, activity in UUP (PowerShares U.S. Dollar Index Bullish) has caught our attention as well. On 10/11/10, Chojnacki also noted in reference to UUP in the S1F ETF Daily that "It is entering a congestion area that has provided good support in the past. Possible bounce off of these levels or breakdown below $22 would provide opportunity to trade UDN (PowerShares U.S. Dollar Index Bearish)."
Chart for UUP:
Clearly, since UUP touched its recent low of $22.17, the trend has been nothing but up, with the ETF closing at $22.64 yesterday, and having traded as high as $22.70. Call buyers have been present consistently in UUP, in abnormally large size for weeks in the product, accumulating calls in December, January, and March strikes primarily, with the most popular ones being the 23 and 24 calls. Also, trading volumes in UUP have been literally off the chart recently, with over 15 million shares traded yesterday (versus average daily volume of less than 5 million shares), and in 6 of the last 10 sessions, trading volume in the ETF has surged well above its average daily number of shares traded. It seems that a number of institutional funds are positioning for a reversal in 2010's path of mostly depreciation, in the U.S. Dollar, going into this year's end and early 2011. If the call buyers are right, and the U.S. Dollar continues to appreciate, this could positively impact companies that import raw materials or goods into the U.S., including some retailers for instance. This is because foreign goods become less expensive for these buyers as the U.S. Dollar rises. WMT, DLTR, COST, and TGT are examples of such companies, and some relevant ETFs to watch would include RTH (Retail HOLDR), PMR (PowerShares Dynamic Retail), FXD (First Trust Consumer Discretionary), IYC (iShares U.S. Consumer Services), PEZ (PowerShares Dynamic Consumer Discretionary), RCD (Rydex S&P Equal Weighted Consumer Discretionary), VCR (Vanguard Consumer Discretionary), XLY (SPDR Consumer Discretionary), XLP (SPDR Consumer Staples), VDC (Vanguard Consumer Staples), and XRT (SPDR Retail). ETFs that have considerable exposure to WMT include RTH (20.23% weighting), XLP (9.51% weighting), VDC (9.12% weighting), IYC (8.64% weighting), KXI (4.84% weighting), PFM (4.79% weighting), and RWL (4.4% weighting).
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