Buying Time for the Greenback as UUP Trades Lower

Active investors and short-term traders who began buying weakness in the U.S. dollar courtesy of the PowerShares DB US Dollar Index Bullish Fund (NYSE: UUP) have had the opportunity to deepen their commitment, as UUP traded lower again on Monday to finish short-term oversold for a second day in a row.

The two consecutive selling days in UUP are probably better seen as part of a larger pullback in the exchange-traded fund, one that began in mid-March and sent shares of UUP lower for three days in a row (two in technically oversold territory).

Buyers moved in to respond to the short-term price extremes, but sellers clearly were not yet finished. Not only was the bounce after three days of selling a tepid one (UUP never returned to overbought status, for example), but also sellers managed to send the fund to new, short-term lows over the next two sessions. This leaves UUP again oversold, and trading as near to its 200-day moving average as it has in a month.

The selling in UUP has earned the fund a short-term positive edge of more than 1% heading into Tuesday’s open. This, combined with newly oversold conditions, suggests that the PowerShares DB US Dollar Index Bullish Fund has already retreated to levels where traders have been most inclined to buy than sell, historically speaking.

And while there may be additional follow-through selling here in the first half of the week – especially as end of month bullishness continues to give traders and investors a strong preference for equities over cash – no one should be surprised to find a recently oversold greenback making up for lost time with a strong move higher potentially as early as the end of the week.

Click here to learn more about the Connors Research Trading Strategy Series. Stock market research for short-term traders and active investors.