Wednesday’s ETF Chart To Watch: DB USD Index Bullish (UUP)

by on January 16, 2013 | ETFs Mentioned:

Major equity indexes inched higher as better-than-expected economic data re-ignited bullish momentum on Wall Street. The Nasdaq Index, however, posted a minor loss on the day as Apple’s sluggish performance dragged down the entire technology sector thanks to the firm’s massive influence given its sheer size. The headline story on the day was December retail sales, which grew by 0.5%, marking a modest jump from the previous reading of 0.4% and also surpassing analyst estimates of 0.2% growth [see How To Swing Trade ETFs].

Investors will keep their focus on the homefront later today as corporate earnings come under the spotlight along with key inflation data. With U.S. Consumer Price Index data slated to come out before the opening bell, our ETF to watch is the PowerShares DB USD Index Bullish (UUP, A), which may gap in either direction depending on investors’ reaction to the latest domestic inflation reading; analysts are expecting inflation to come in unchanged at 1.8% year-over-year [see our King Dollar ETFdb Portfolio].

Chart Analysis

The U.S. dollar has endured a sour start to the new year as bullish sentiment has boded well for riskier assets, namely equities. Despite dropping lower over the last two week, UUP currently presents a buying opportunity for savvy traders. Notice how this fund has traded within a crudely defined upward slopping trading-channel (red lines) since bottoming out at $21.57 a share on September 14, 2012; what’s noteworthy here is UUP’s tendency to rebound higher after touching the lower support line of its channel [Download 101 ETF Lessons Every Financial Advisor Should Learn].

Click to Enlarge

With UUP trading near the bottom-half of its range, entering into a long position at current levels offers attractive upside potential along with the opportunity to closely limit downside risk by placing a stop-loss right underneath support around the $21.60 mark. More conservative investors may wish to remain on the sidelines until UUP settles back above its 200-day moving average (yellow line) [see ETF Call And Put Options Explained].

Outlook

If the latest CPI report shows a healthy inflation reading, UUP may have the wind at its back for the day; in terms of upside, the next resistance level comes in at around $22 a share. On the other hand, if inflation comes in far above expectations, bearish pressures may plague the U.S. dollar; in terms of downside, this ETF has major support at 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.