Smoking Securities

Half Baked High Finance

UUP & $USD Divergence?

with one comment

Any one have thoughts on the following divergence?
The relatively new Dollar Bullish ETF UUP is indicating a new downtrend.

On the other hand, the $USD, a index with a bit more trading history, seems to be at the lower range of an uptrend.

Since they share a 1:1 correlation, this aberration might be explained by the graphing technique I’m employing. The charts are scaled by average true range over some really long period I’ve arbitrarily set (9999999). Since UUP has little trading history and less long term volatility, it might exhibiting a closer relationship to its relative trend line. Due to its longer indexical history, $USD has a greater range, and thus the scale is probably reflecting it’s volatility. I suspect that many traders will be getting short UUP due to the chart, but perhaps it would be better to investigate the nature of the underlying $USD.

To put this into perspective, let me detail my past Thanksgiving. After a glorious feast centered around a enormous Turducken, I went out for a smoke with a few friends. A curious looking fellow who was clearly unemployed and missing a few screws came up to us and began a classic rant. “9/11 was an inside job, Planet X is coming, 2012, New World,” yadda yadda. Since I believe all that shit, it was embarrassing to hear it from a clearly deranged lowlife for whom I have little sympathy. The nail in the coffin was his insistence upon an economic collapse, and the fall of the dollar, which is more conspiratorial logic that I agree with. Then it hit me.

When the unemployed and homeless are shorting the dollar, beware. All logic screams that the dollar should fall. We’ve all seen the charts, we know the debt burden is incalculable, we know that the Fed can print money. But the dollar is rising. Scores of analysts with enough degrees to melt the steel core of the WTC say that the dollar must fall. It isn’t. Trade what you see, not what you believe.

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Written by chucklesamadeus

November 27, 2008 at 9:36 pm

Posted in USD, UUP

One Response

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  1. word. and beware of charts and other auguries. the time quantization frames are arbitrary; move them over a notch and the patterns change.

    this is good analysis : http://seekingalpha.com/article/108156-interactive-brokers-fx-summary

    dfx

    November 28, 2008 at 5:33 am


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