More Weakness, Outflows in Dollar ETFs Would Boost Stocks in 2013

PowerShares DB US Dollar Index Bullish (NYSEArca: UUP) was among the ETFs that saw the heaviest outflows this year as the greenback weakened against most major currencies.

The ETF, which tracks the movement of the dollar against a basket of currencies, has posted outflows of $1.2 billion year to date. It is fifth on the list of most-sold ETFs in 2012 in terms of dollar amount, according to IndexUniverse.

In fact, UUP’s outflows this year are more than its current assets under management: $662.3 million.

From a price standpoint, the dollar ETF is down about 3% year to date.

Now, a bearish technical pattern is forming in the Dollar Index that could push the greenback lower in 2013, which would provide a tailwind for stocks. [Dollar ETF Higher After QE3]

The US Dollar Index was all over the place in 2012, but ended the year slightly lower than where it started, writes Arthur Hill at StockCharts.

“From February to December, a large head-and-shoulders reversal formed with a rising neckline,” he added, noting the dollar’s bearish technical formation.

A break below the neckline “would confirm the head-and-shoulders pattern and target further weakness,” Hill said.

“Such a move would be bullish for stocks because the Dollar and S&P 500 move in opposite directions,” he wrote. “Weakness in the Dollar would suggest a strong appetite for risk, which would bode well for risky assets, such as stocks. A close above the December high would call for a reassessment of this bearish head-and-shoulders pattern.” [Dollar ETF Rally Hurts Stocks]

US Dollar Index

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