Dollar Inflection Point

Alright, let’s cut right through the chase, folks. It’s really ole’ bucky’s game at this point and whether or not equities are able to squeeze higher from here will be decided on the USD side. Unfortunately even assuming that possibility I have doubts as to how much equity downside potential there really is in store right now. Let’s cover the Dollar first and then I’ll fill in the rest:

The daily is looking more beat than an ugly stepchild – despite being sold to smithereens it’s not yet clear if it can even push back inside the 100-day BB box. Unless that happens we may have to face further pain throughout the final quarter of this year.

The monthly shows us overlapping weekly/monthly support between 78.3 and 78.67. If we close September below we would officially trigger several LT sell signals leading toward 73.

The very long term P&F seems to agree – as a matter of fact 73.5 is the current bearish PO. A reversal here and now is needed to stave off further deterioration, however given we are in the final stretches of the election cycle I can’t help but wonder if that is in the cards.

Here’s my LT USD chart to round things up – once again it appears that holding the 79 mark is crucial.

Now let’s take a peek at the Euro and the Yen – which both appear to be in sync with what we’re seeing on the Dollar side. We also have some updated P&F and momentum charts:
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We did meet our bullish price objective and are already starting to head down. HOWEVER this may just be a short term correction and until we take out 126 with confidence the Dollar remains in trouble on a medium to long term basis.

The Yen has been able to hold support and even managed to climb a little. And had it dropped one or two more boxes then we’d be talking bearish price objective right now. Until that happens the bullish PO of 132 remains in place.

Crude is now sporting a preliminary bearish PO of 81. That was quite a reversal – and as of now 88 is our next best opportunity for a bounce.

Gold – officially met its price objective – we had quite a nice run there. Probably time for a correction but unless we drop over 100 handles chances are we shake out some late comers and move higher in late fall.

Copper also very near its price objective – already starting to paint a correction. However, as in equities i’m not seeing real downside here – and after a stack of boxes like this it suggests a dearth of sellers. Seems not many are risking to bet against Bernanke’s infinite put.

On the momo side I wasn’t able to dig up much that would suggest long term trouble for equities. To be more precise – nothing that would worry me these days. Obviously that stunning divergence on the NYSE adv/decl issues ratio would have produced a few months of pain back in the days. Today however I would not be interested in betting against equities unless I see pronounced reversals on the currency side.

NYSE advancing/declining volume. Yes – divergent – but has that meant much recently? Don’t get me wrong – the possibility is there but unless I see the Dollar kick butt and take numbers the most I expect here is an obligatory shake out on the equities side.

I am similarly skeptical about that developing divergence on the SPXA50R:SPXA200R ratio and I have highlighted comparable periods of ignorant bliss for the bulls.

Bottom Line: As noobfxtrader aptly pointed out last week: “The market has shown for weeks even months that it does not want to go down. Just listen to it.” Frankly, I couldn’t have put it any better. Per my Friday post I have suggested an impending short term correction or at least some more sideways tape. Medium to long term however the current uptrend in equities remains unchallenged. Mind the Dollar – and even if it manages to push higher I think that we will find our easy trades on the FX and not on the equities side. However, if currencies continue their current trajectory (i.e. Dollar and Yen down – Euro up) then our SPX price objective of 1550 may become reality sooner than we think, perhaps even before the election.

Cheers,