Date: 7/12/2022
Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
Most of my trading, as of late, has focused on short-term plays.
The market’s choppiness makes it difficult to predict (read easy to lose trades) where stock prices will be out past a couple of days at most.
However, the market is still in a long-term downtrend.
The recent bounce off the 390 support level on SPY on the daily chart doesn’t bode well for a reversal anytime soon.
However, back in early Spring, I felt that the dollar value was headed up over the summer.
Turns out I was correct in my thesis.
Rampant inflation is a direct result of the Fed’s misguided “quantitative easing” policies. Even an undergraduate economics major understands that injecting more money into a system can only cause inflation to rise.
To combat this, the Fed has taken steps to raise interest rates on the US dollar.
They did this at a level that far exceeded steps taken by other countries, especially in Europe. And it seems they are willing to be even more aggressive with this policy as inflation continues to rise.
Add to this the downturn in equity prices from supply chain issues and the war between Russia and Ukraine. As a result, we may see a strengthening dollar compared to other world currencies.
It has made the US dollar a sort of safe haven for investors.
One trend to follow. One trend to erase from your memory.
I don’t trade currencies directly, but I did buy calls on UUP, a low-priced bullish ETF on the US Dollar index. Take a look at the chart and see what’s happened.
Not the fastest mover of my long-term tickers, but it has definitely paid off.
The plan was to enter the trade and add additional calls on all pullbacks to the 34 EMA.
This has been decidedly profitable, and my positions are up significantly.
If you aren’t in this trade already, it’s up to you to decide whether you believe the ship has sailed or you’d like to get in now.
I personally see a bit more upside here.
Obviously, nothing will go up forever, so perform your analysis wisely. However, the chart remains bullish, and I’m holding my long-dated calls.
The impact the rising US dollar value will have in the long run is anyone’s guess.
It definitely does no favors to profits for multinational corporations like MSFT or GOOGL. On the contrary, it might hinder US exporters’ business…a situation leading to less than stellar earnings.
I’m not suggesting you run out and put a trade on today.
What I do consider is that you add it to your watchlist for a potential trade.
If the market suddenly reverses, you could get stuck holding the bag. However, if the next CPI report shows inflation higher than expected, UUP could get another boost from interest rate hikes.
Remember, I don’t trade on fundamentals or macroeconomic policies.
It isn’t that I don’t understand them, they’ve just never made me much profit. I am a technical analysis trader.
I just play the charts in front of me and suggest you do the same.
No one knows what will happen, but we can profit from what is happening now. So look at the chart, filter it through your rules, and decide.
What you do with this information is ultimately up to you.
Cheers,
Chris Hood
