Market on Drugs? and updated look...

The Dollar - pattern broke supports

This is an updated chart of the dollar from several days ago. This raises the odds of some lower probing...with downside targets in the 74.5 area. However, if the multiple turn dates occurring early next week play out the lows could still be in already and the dollar could make a huge move, otherwise it will be more of the same dribbling down.

Interestingly, the large healthcare reform bill being voted before congress may have large implications for the future of the dollar and interest rates. A plan as misguided with regard to debt and constitutionality is likely to cause some real issues with interest rates and could be a good excuse to get 3 of 3 down moving...but for now the dollar chart forecasts weakness.

The Dollar - another view

This reflects the same chart as DXY potential for a small bounce in the markets and a dollar pullback to 75.90 or so. The HS pattern looks better on the UUP even than the DXY directly which is why I wanted to show this chart.

above chartcourtesy of matt fraily, breakpointtrades.com

Dollar Analysis - much focus on market bounce - evidence not compelling

Every where I see people looking for a market bounce, while evidence may support a very small one, keep in mind that the dollar did not even take out Thursday's high on Friday while equities got pummeled. From what I see, a pullback in the dollar has maximum potential of around 75.90. That is the dashed support line on the chart below. If the dollar were to take out that level, it would likely be taking out swing lows from the left shoulder and that would be a SIGNIFICANT compromise to the technical picture.

What seems most likely to me is that the dollar makes a small pullback above this support and then breaks out or simply gaps up over resistance at the thick green line. This of course would likely support a market that would cascade lower to the 1016 to 1020 area at least, probably more prior to a good bounce. If we look at the downside risk for the dollar its so minimal that any market rally would have to be rather restrained at best. Again, if the dollar were to take out 75.90 then something else would be playing out.

The thick green trend line immediately above for the dollar is a significant resistance, but the pattern is strong and looks like it is demanding follow through and then consolidation. A breakout of this trend line will cause an avalanche of dollar shorts to cover... potentially in explosive fashion.

Looking at past action in the dollar, pullbacks during the first short squeeze higher are extremely small and more likely gap ups. I will post some examples shortly.

Please click on chart for a sharper view.

Market Observations - Dollar Poised

The dollar is poised and ready...just below key resistance. Ironically, most are looking for a bounce...if the dollar does breakout...then we will need to be looking for a cascade lower. So far, the dollar has guided me very well through this current pattern. Right now, I favor a small bounce followed by a dollar breakout and an equities cascade lower. What this means is that immediate resistance may provide a convenient point for some dollar selling or consolidation...and we can not underestimate how minimal that may be. Once this resistance is broken the effect will be a strong rally for the dollar and heavy selling of inflation assets. SP 500 targets for me on this move will be 970 area with a hesitation at the 1016-1020 area.

EURO divergence has been and will likely continue to be a great trigger for trading and has revealed the dollar and market patterns prior to them occurring - sometimes by as much as 30 minutes. It is currnetly my primary trade setup vehicle. If there is no divergence between the EURO and the SP500 I do NOT do a trade.

The fractional reserve system is dead...and the impact of that will be an exploding dollar. Which is why we have to worry about the impending breakout on the dollar chart. To understand more about this subject please read the feature articles posted on the upper right on this blog.

Below is an unchanged old chart of the SP500 that I posted over the last few weeks.

Below is a very good chart from Matt Fraily for the UUP.

Below is an unchanged old chart of IWM that I posted on the 21st of September.

Below is a chart of Oil that I have been monitoring over the long-term. 

First resistance held...we have not yet made it to the upper resistance which is around 87 to 90...which is rather disappointing for the pattern. Depending on next week's action in the dollar, we will see if there is any upside potential remaining.

The Gold Equities GDX chart below this is from Matt at breakpointtrades.com and demonstrates that gold stocks are leading physical gold, as they usually do. If that is the case, any bounce for commodities will be muted.

Below is another chart from breakpointtrades.com of the SPX.

I do not love the count of the wave 4 as it is labelled. But I do think that we are putting in some sort of triangle or flat here for wave 4. This is appropriate alternation and may reflect what the dollar chart seems to indicate - which is that an upside breakout on the dollar will make equities want new lows before we get a sizable bounce.

above chartcourtesy of matt fraily, breakpointtrades.com

Market Observations - Trendline Breaks

Market Observations - One Chart

Only one chart is necessary to guide us for the next few days. The breakout or retrace on the dollar chart below.

I do not see a high likelihood of a test of the lows on this pattern at this time. Additionally, that would also setup an entirely different scenario. But I do think we may have a small argument with the downtrend line immediately above. This resistance level was rejected today. Perhaps we get a retrace back to the 75.60 to 75.80 area. That would afford the market some upward bias consolidation.

However, it may also be possible that we open with a breakout of this downtrend line. In which case I would think that we see very heavy buying of the dollar. 77.40 would be the nearest target in that case. That would set up a range day down potential for the indexes. Personally, as the markets are oversold, I would like to see some bounce or even rally here and thus a pullback in the Dollar...but this market has not been in the habit of doing what we want it or expect it to. So, given the bearishness of the the sentiment for the dollar, there is a lot of pressure to breakout of this resistance area. So, that is the signal I am looking for.

Short-Term Dollar Chart - but still unfinished business

Below is a chart from Mathew Fraily from yesterday...its great chart of the short-term dollar

Please see his blog: here

and here is an updated view version from today

Interestingly, in my brief look at the dollar today, since it is the main symbol I watch these days, looks like it could have a continued near-term bounce...but it still looks like it has work to do on the downside to create an emotional bottom...this is also reinforced because Gold, Silver, Oil, DBA and some other commodities look like they still have an up move left. Gold targets 1085 to 1090, DBA 27.8 to 28 and Oil 87 to 90. Perhaps we get a gap down in the equity markets and a rise in the dollar on Monday am...followed by a chaotic few days of trading with big reversals. I do think that a new low in the dollar will not result in a new high for most of the equity markets...but commodities look like they will be more sensitive to the move...and could produce nice parabolic type tops.

If there ever were contrarian indicators, they are popping up all over the place, Saudi Arabia, Faber, Weiss to name a few recent ones. Now, Lazard, ostensibly for marketing purposes, is changing currency denomination for their World Trust Fund to Pound Sterling. Anytime the basis for a decision is mass market perception - you can count on one thing. Its popular and wrong.

Change of share trading currency and proposed sub-division

In response to comments from a number of shareholders and potential investors in the Fund about the liquidity of the Fund’s shares, the Board, having consulted with the Fund’s brokers, Arbuthnot Securities, believes that having a larger number of shares in issue with a lower share price than at present and changing the currency in which the shares are traded from US dollars to Sterling, should assist in improving the marketability and liquidity of the Fund’s shares and support the attraction and retention of a diverse shareholder base.

Change of share trading currency – the London Stock Exchange has confirmed that the currency in which the Fund’s shares are traded will change from US dollars to Sterling with effect from 8.00 am on Friday 30 October 2009.

Oil Analysis

Interesting chart on Oil...78 to 79 was my target. We are here...maybe we get some selling or a pullback here - it certainly seems like a good place for it. But since everything revolves around the dollar and the dollar needs some emotional selling the upside targets shown on chart could come into play. If that were to occur then we could also see Gold and Silver targets met...as an aside, a pop in these commodities does not need to be confirmed by the equity or bond markets.

below is a larger chart...click on it for a sharper view.

SP500 Pullback Analysis

Right now we held trend line support which would make this a potential ABC...a break of that trend line creates 5 waves off the high.

Market Observations - Tomorrow...

Transportations - Big Backtest

Market Observations - VIX kisses

VIX kissed the trendline...as expected. Now I am waiting for the reversal - should be quit a show.

The corporate bonds chart below needs no lables...Clearly the market rally is diverging with the smart money in bonds...we need to watch these bonds early next week.

My scenario seems to be coming together nicely...Dow pushed out a minor high extension and maybe we can get a little more from the SPX...but otherwise the market is most likely nearly done.

Treasuries...what divergence?

thanks to matt fraily, breakpointtrades.com

The chart below is from a post called: All we need now is a big hit to theoretical money - derivatives anyone? I think its worth another look at this point.

Observe the chart below. Each large move in the SP500 was preceded by  period of correlated behavior between treasuries and stocks. We are presently in a significantly correlated pattern.

 

Market Observations

VIX, RUT, SPX and DJ have taken out key levels....

Wedges compromised.

Dollar - Hanging on the Edge

The dollar is hanging on to the declining wedge. It has not rallied impulsively. It needs to bounce hard tomorrow, otherwise, it looks potentially like it will attempt to match the 100% target for wave 5 down. This is around the 74 to 74.20 area and would coordinate well with a push in early October till the 7 to 9th. However, the reason that I suggested that the dollar configuration could be consolidative is there are multiple elements that are not pointing to a substantial rally in the markets here. The VIX is one of them. The VIX was up solidly as was the Put/Call. The positive VIX indicates a trend emerging to me, and the put/call may indicate a reaction in the market of a little more upside. I would not prefer to see the dollar fullfill the pattern below. But, the structure for Gold and Gold related stocks and Oil point to higher prices unless we get immediate or very quick reversals. The VIX supports the potential reversal scenario.

So, given the put/call and the $VIX setup, perhaps we are looking at a finishing move up in the am for the transports and indexes and then as sharp reversal. I will be buying into the reversal scenario if VIX takes out the recent highs.

Transports - Breakdown

Transports - Breakdown Around the Corner

Gaps on the ES contract

These make good target zones...to be aware of...

Market observations - Back Test Time

I would like to reiterate that there are gaps on the ES that need to fill in the 1074 area...In my opinion we have to test that area or exceed it. It is entirely possible that the market fails to make a new high and instead confirms wave 2 for our impulse wave down. This could be fulfilled with a move to the 1077 area on the SPX cash.

As you can see the VIX has made another attempt to break its down trendline. This is accompanied by a MACD cross and RSI over 50...something to keep a close eye on...VIX is currently only backtesting this trendline...it could drop below it again...or preferably consolidate and rally straight from here.

Transports had their huge sell day last week...the largest volume selling day in the $TRAN history. If the markets do continue up...into the Oct 2 to 7th area...any new high will not likely be confirmed by the $TRAN. This is a very good cue that these highs will be a top of consequence.

Oil is at an important support...and with the dollar showing strength today...it could easily break the down-trend line and take a quick trip to 57. The alternate view is that the dollar needs a consolidation and will allow for some upside for Oil - though that should not amount to much.

Agriculture commodities are struggling and remain below the emerging 2-4 line of the pattern...a break of that huge support line below will likely coincide with a strong move down. Upside looks like it would be quite limited...and this chart does not look healthy at all.

The dow could get its legs, in fact it has to tomorrow...otherwise this whole pattern, VIX, Trans and DJ look like simple backtests of resistance. Personally, I think there is some remaining upside...though nothing substantial.