What I Saw ( Week of 12.15.14 )

This past week, the focus of my attention was ( EWC, OIL ) and the commodity currencies ( AUD, CAD )  and the relative value of ( USD ). First let's take a look at the updated charts I posted on Monday. 




Clearly during this week ( EWC ) recovered some of the previous week's losses. In fact, the bounce in the market ( SPY ) and ( OIL ) led to what I believe is a short covering rally in a lot of depressed energy/commodity producers.

Basic Materials ( Energy ) crushed the performance of the next best performing sector. IMHO this type of outperformance does not immediately indicate a trend change on longer time frames but maybe for the short term ( 1 - 3 weeks ). In the case of ( EWC ) it looks like the stock made fresh 52 week lows on Dec 15, 2014 and 'bounced' with the broader market rebounding ~6% on the week. However the Canadian iShares ETF is still down ~3.5% on the month. I believe as the price continues to rise the ETF is entering a much better risk reward setup for a short entry.  

Let's examine the following chart showing the following ETF performance over the past 5 days. ( EWC, UUP, FXC, FXA, SPY )

Click image for larger size

We see ( OIL ) firming up finishing the week almost unchanged. We also see the broad market ( SPY ) also increasing ~3.3%. Here's where we see some divergence in the price action. ( UUP ) which is the U.S. Dollar ETF was up ~1.5% this week versus a basket of other currencies including ( CAD, AUD ). Looking at those specific currency ETF's ( FXC, FXA ) we see both currencies down approximately ( -0.44%, -1.5% ) respectively which makes sense contextually. However the Canadian iShares ETF ( EWC ) outperformed them all up a whopping 6% on the week!

The question I'm asking is, are Canadian dollar denominated assets likely to outperform USD assets? Is that what the currency picture is telling me? No in fact it's saying the opposite. I'm really curious if this divergence is setting up as excellent a short entry as I'm prognosticating.

I'll look to delve into this perspective in a future blog post where I analyze these factors more in depth as the basis for an actual trade.