A while back I posted a downside target for UUP at 22 and current signals continue to support that prognosis. Regular readers know that last year I devoted almost 4 months of posts to exploring the forecasting possibilities of the PDQ Dashboard, a quantitative tool that examines relative Z scores of various correlated pairs . . in this case, the currencies.
The PDQ Dashboard’s premise is that financial entities have a “signature” that can be measured and tracked. This “signature” includes factors like volatility, average trading range, beta and linearity of price sine curve. The Dashboard integrates these factors and produces a vector forecast . . not only direction, but also time . . that is, the length of the typical swing cycle and the position of current price within that cycle. By engaging a pairs analysis approach we are able to see both the linearity correlation of a pair as well as where the pair components are in relationship to one another. Then, by creating a basket of highly correlated pairs and analyzing the signal from each pair we derive a net signal for our target . . in this case UUP.
We then filter that composite signal with several risk management stops such as stop loss, equity curve alignment and duration of signal to yield a final consensus signal. Our current UUP short signal has been in effect almost to the limits of our forecasting range. This situation means we now must have price conditions to generate new short signals or UUP may be setting up to reverse it’s long term slide.
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