Wednesday, December 23, 2009

Bookkeeping: Selling Dollar (UUP) Calls

I had not been paying attention to the chart of the dollar this week, so I left some money on the table on the trade of our UUP (Dollar long ETF) calls [UUP-CS].  It looks like the dollar ran perfectly into resistance (200 day moving average) yesterday (this dollar chart is 1 day behind since does not update the dollar in real time), so yesterday the calls I bought right before Thanksgiving were up over 40%.  Today the gain is only 28% (on roughtly 2% of the portfolio), which is still satisfying for 5 weeks of work.

Here is the chart of the dollar index (1 day behind) - it has been a wonderful December for the greenback

And the ETF that tracks the dollar (20 minute delay)

The thought process on this trade was (a) the short dollar trade was massively crowded, as was the long gold/silver trade and (b) the market has been impossible to short, so by going long the dollar I could protect the portfolio somewhat in case of a selloff without taking a big hit of the market just continued upward.   In retrospect reason (a) was more relevant than reason (b).... the market went up on weak dollar since March 2009... and now it goes up on strong dollar.  So there is no losing for this market...

I said yesterday when I let go of most of our gold exposure that the precious metals were overdue for an oversold bounce, as the dollar was also due for some consolidation after a big move.  As I peruse this chart, that reinforces that thought. 

From here it will be interesting because an intermediate bullish setup for the dollar, in the confines of a secular decline - still exists.  Let us see how sharp a pullback, if any, the dollar does from here... and/or if it can burst through resistance at the 200 day moving average.  For now, the 'easy' trade has been made (not that buying the dollar has been easy at any point since March 2009!) so we're harvesting profits.  If the dollar bursts right through that 200 day (mid $78s) we'll jump back on board, for a new leg up.

[Dec 15, 2009: Constructive Action in the Dollar]
[Dec 4, 2009: Dollar Rises Most Since June, Gold Falls Most in a Year]

No position

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