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UUP and GLD, Like Looking In a Mirror?

|Includes: GLD, IAU, SGOL, UDN, PowerShares DB USD Bull ETF (UUP)

 Last Friday we saw a tremendous amount of trading interest in UUP (PowerShares U.S. Dollar Index Bullish), as the ETF traded nearly 9 million shares (about 3 times its average daily trading volume), and the largest volume day since mid June. Earlier in the session, UUP traded at a new 52 week low of $22.02 before reversing sharply to finish the day higher, up 0.59% to $22.34. If one looks at a chart for Gold (GLD, IAU, SGOL) versus UUP, the trends look almost like mirror images of each other, with GLD rallying nearly 14% since late July/early August lows and UUP falling about 5%.

On 10/11/10, S1F market technician David Chojnacki noted the climb in GLD stating "as we near resistance areas, take or protect some profits." Institutional options players seem to be positioning for some kind of pullback in Gold as well, as we have observed consistent put buying in GLD in various months for the last few weeks. Additionally on 10/11/10, Chojnacki noted recent activity in UUP stating "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)." So UUP bounced off of the $22 level on Friday, and remains in a congestion area, and should be watched closely along with the activity in Gold. Against this backdrop, we also have a recent bounce in the VIX (S&P Volatility Index), after it fell sharply out of a narrow trading range from $24 to $22 throughout September, which could provide additional signals of possible near term macro disruptions. 

Disclosure: No positions

Price Chart for GLD -,uu[h,a]daclyyay[pb50!b200!f][vc60][iue12,26,9!lc20]

Price Chart for UUP -,uu[h,a]daclyyay[pb50!b200!f][vc60][iue12,26,9!lc20]