The UUP Bites the Dust

Published on Saturday, 07 November 2009 17:23 Written by Christopher Lynn

 New York, Nov 7 (TradersHuddle.com) - Last Thursday the PowerShares DB US Dollar Index Bullish (NYSE: UUP) made unusual movements that involved heavy volume and a big upside spike that was completely uncorrelated to its underlying US Dollar tracking index.

With this event we now have this ETF trading at a premium over its underlying tracking index, this spike or anomality in the ETF was caused by a growing number of investors betting that the Green Back will be bouncing off from its 14 month lows, forcing DB Commodity Services LLC to seek regulatory approval for an additional 100 million shares in the DB US Dollar Index Bullish Fund (NYSE:UUP). DB Commodity services is a subsidiary of Deutsche Bank AG (NYSE:DB), and it is now facing the same situation that few weeks ago was impacting the trading in the United States Natural Gas Fund (NYSE:UNG). 

These events are becoming a common trend across the ETF industry, where a sudden increase in demand results in a premium in the tradable instrument, and this is nothing more than a simple lesson of supply and demand for these fund administrators. As for investors, this is a big yellow flag as this instrument has just become a trade and not an investment.