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Short Ideas for 2010: Technical Analysis

DXY Monthly -- U.S. Dollar Index
Source: Prophet.Net

A tradable vehicle for shorting the dollar index is the PowerShares DB US Dollar Bearish Fund (UDN). The opposite bullish ETF is the PowerShares DB US Dollar Bullish Fund (UUP).

Although the long-term trade is to short the dollar, the dollar trade can reward both the long- and short-term trades, given the propensity of the currency markets to continue a trend once started. This is best viewed via the weekly charts.

Currently, the UUP trade is to trade it long in order to exploit the dollar's countertrend bounce. Resistance was recently hit at $23.25, but as can be seen on the chart, that area is seeing serious volume expansion. That suggests a break higher is yet to come.

UUP Weekly -- PowerShares DB U.S. Dollar Index Bullish
Source: Prophet.Net

The next higher floor ranges from $23.25 to $23.75. After that, the likely final floor is as high as $24.50. A quick calculation shows that the $24.20 on the UUP equates to roughly $81.50 on the dollar index. That is a best guess for how high this current move can carry and, if our analysis is right, that should be the general area where the dollar tops out in 2010.

After that, you have to expect the trend to reverse and for the dollar to begin to weaken once more for the remainder of the year. It is at that point where you would begin to look to ride the weak dollar trend via the UDN ETF.

UDN Weekly (NYSE) -- PowerShares DB U.S. Dollar Index Bearish
Source: Prophet.Net

The buy zone on UDN stretches from roughly $26 to $27 and is demarcated by the two large volume bars from the May/June period. As prices retreat, those are the volume bars to measure against. My expectation is that volume will taper off as prices retreat and will eventually offer another longer-term opportunity to short the weakening dollar.

That's it for the longer-term plays you should consider for the coming year. There is every reason to believe that 2010 will provide plenty of opportunities as well as pitfalls. Armed with some long-term bullish and bearish trading thoughts, it should be an interesting one. So until then, keep trading the charts!

At the time of publication, Little was long Great Basin Gold, the PowerShares DB U.S. Dollar Bullish Fund and the UltraShort 20+ Year Treasury ProShares.

At the time of publication, Little was long Great Basin Gold, the PowerShares DB U.S. Dollar Bullish Fund and the UltraShort 20+ Year Treasury ProShares.

L.A. Little is an author, professional trader and money manager who writes daily on tatoday.com, a free educational site for traders and investors. He has been featured in Stocks & Commodities magazine and is the author of Trade Like The Little Guy.

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