Patrick Clark September Investment Report (UUP, IYR)

Author: Patrick Clark

Disclaimer:  Patrick Clark does not own UUP or IYR in his Covestor Market Neutral Growth Model.

August 30, 2010:  The overall market continues to look bearish technically.  As the market moves lower, my trading rules have reduced my long bias which currently stands at 25%.  I expect the market to continue lower in the intermediate term. 

 The US dollar as measured by the ETF UUP has been very volatile in recent months.  It has gone from a seven month high volume uptrend, to a sharp two month plummet which broke below long term support.  Over the past few weeks, UUP has risen back to its previous support level as measured by its 30 week moving average.  I suspect that this level will act as resistance now and that the dollar is in the early stage of an intermediate term downtrend.  However, with the extreme volatility of this ETF, I would not be surprised to see UUP temporarily shoot through this resistance level before continuing lower.

 The real estate ETF, IYR, looks poised to move higher at this point.  It is coming up from 30 week MA support and looks bullish in the very short term.  However, this uptrend is over 18 months old now and may be close to a long term reversal.  The fundamentals of the real estate market are confusing.  In the absence of government intervention, this market would have crashed a long time ago.  How long can the federal government prop it up?  That is the question that needs to be answered to successfully trade IYR.  From a technical perspective, I just see that that uptrend looks tired.  The trend line slope is not as strong in recent months and volume has been relatively weak. 

I expect the market to continue lower in the next few months and I look forward to the transition from a long bias to a short bias if this forecast materializes.