Wednesday, September 29, 2010

Watch out for the $ Dollar before deciding what to buy!

What we're watching?
If you're thinking you've missed the market run up or are thinking of putting some money to work, keep an eye on the Dollar and more specifically at the etf UUP. It's at a low not reached since January 18th. If you look at the weekly chart below you'll see:
* The Relative Strength is very low at 31.95 but hasn't turned up yet.
* Pretty solid support down at 22.31.
* The MACD still pointing down with the 12 over the 9.

The daily chart looks very similar.

Now that I've bored you to death with technical terms and charts let's get down to the trade.

The Trade:
I've gotten long by purchasing 50 UUP December 23 call contracts for .40. As I showed you in the chart above the dollar has not turned up.....yet but it should over the next few weeks to a month. Based on this thought to help finance the purchase and lower my cost in the trade I sold 50 of the October 23 calls for .17 cents. I have effectively said the dollar will drift here and I'll take the time premium and pocket that cash waiting on the dollar to turn up.

The beauty of this trade:
* If I'm right and the dollar sits tight for 16 more days I pocket 17 dollars for every contract I've sold while I wait.
* If I'm wrong and the dollar takes off, I will buy back my Oct 23 call and depending on the situation going on in the market at the time I will sell the November or December out of the money call. My Dec 23 call should continue up in this case producing a profit either way.

What this trade also means?
You need to keep an eye on the dollar because if it turns up and starts to move up, the stock market will sell off including materials, oil and more importantly metals(Silver & Gold). If you own the etf's on GLD or SLV or GDX(the miners) you should be smart and sell covered calls to protect your long position. If you own close calls on the metals I would suggest you close these and take your money and run. I'm bullish longterm for gold and silver and continue to own LEAPS JAN 2012 GDX & JAN 2013 SLV.

More on silver and gold tomorrow.

DYOD (Do Your Own Diligence)

Happy Trading!
Marty Blackmon

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