Sunday, December 13, 2009

UUP Dilemma… Will Dollar Volume Hold? (UUP, SPY, QQQQ)

This weekend’s review of options and volume movers on Friday yielded a highly unusual alert.  The PowerShares DB US Dollar Index Bullish (NYSE: UUP) has never been covered by us on the “volume spike” aspect, mainly because of the notion that ETFs of this aspect is too broad-based to normally be noticed.  It would almost be no different than saying trading volume in the SPDR (NYSE: SPY) or the PowerShares QQQ (NASDAQ: QQQQ) were seeing big volume.  But Friday may, key on ‘may,’ have marked a significant capitulation move for how traders want to trade the US Dollar.

The “UUP” is one of the most easy and simple ways for investors to bet on the recovery of the US Dollar.  We may be entering a new inflation age and we may not, but it would be extremely rare for the US Dollar to decline indefinitely.  When global investors see Dubai, Greece, Ireland, and Spain all in trouble, it could end up being the saving grace that causes a reconsideration about moving away from the US Dollar as the world’s reserve currency..  But you don’t even need the backgrounder anymore, as you have probably heard this before.  The volume and interest here should speak for itself.

The UUP traded over 15.1 million shares, which is almost 4-times normal volume and what looks to be the record trading volume ever seen since its March-2007 launch.  The ETF itself rose 0.8% to $22.68 versus a 52-week trading range of $22.02 to $26.83.

The real kicker is the options trading as Friday had 342,682 contracts trade of the MAR10 $23.00 CALLS versus an open interest of 105,007.  That represents a 34 million share bet on a fully leveraged basis.  The Dollar-Trade was one of the most crowded on the way down, and it will be one of the most crowded on the way back up if and when that occurs.

Whether this continues, we’ll have to see.  Someone is making big bets on the overall return of the US Dollar.

Jon C. Ogg
December 13, 2009

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