The bears finally made an appearance on Wall Street yesterday as sour housing data coupled with uncertain Fed minutes paved the way for profit-taking pressures on the day. Bullish momentum cooled off for the first time in a week as investors found it hard to leave profits on the table after January’s housing starts figure came in at 890,000, falling way short of last month’s reading of 973,000. Adding to the uncertainty was mixed commentary from the Federal Reserve, with some policymakers suggesting they end bond-repurchases sooner while others warned against a premature withdrawal [Download 101 ETF Lessons Every Financial Advisor Should Learn].
The PowerShares DB USD Index Bullish (UUP, A) is our ETF to watch for the day as it may see an uptick in trading activity following the latest U.S. consumer price index report. The greenback could experience volatile trading in the currency market as investors digest inflation data at the opening bell. Analysts are expecting CPI to come in at 1.6%, marking a slight dip from last month’s reading of 1.7% [see How To Invest Overseas Without Currency Risk].
Following yesterday’s rally, UUP is finally back in positive territory from a year-to-date perspective after kicking off 2013 on a sour note. UUP appears poised to continue trading higher when considering its price action on Wednesday; notice how this ETP has been stuck in a fairly well-defined trading range since mid-September of 2012, bouncing off the $21.60 level (blue line) and retreating at the $22 level (red line) on multiple occasions over the past six months [see How To Take Profits And Cut Losses When Trading ETFs].
UUP was finally able to break above the $22 level on Wednesday, which is encouraging given the trading range at hand. It’s important to note that UUP previously broke above this level in November of last year only to back away as it neared its 200-day moving average (yellow line). As such, we advise conservative investors to wait and observe UUP as it tries to settle above $22.20 a share before jumping in long [see King Dollar ETFdb Portfolio].
Depending on the CPI data, UUP can truly swing in either direction later today. From a technical perspective, in terms of upside, UUP has major resistance around $22.20 a share. On the other hand, far weaker-than-expected CPI could inspire traders to sell the greenback in the currency market. In terms of downside, UUP has support around $21.80 a share followed by the $21.60 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
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Disclosure: No positions at time of writing.