Monday, January 23, 2012

This spells Trouble

The U.S. Dollar- Daily Chart
 It is not an uncommon occurence for most daily cycles to break their cycle trendline when seeking out a cycle low. Monday's candlestick managed to break the daily cycle trendline which gives more reason to believe a cycle low is imminent.  It might also be important to mention that the dollar is now on day 22 of its current daily cycle and extremely oversold which are two conditions that suggest we are ripe for a reversal. I am looking for an early sell-off in the morning followed by a strong finish at the close, possibly tomorrow. This type of intra-day action would produce a long bottoming wick candlestick that almost always marks a cycle low. That's my best guess, but technically speaking, the dollar still has anywhere between 1-5 more days before the cycle is complete.

The U.S. Dollar v. S&P 500

The S&P Daily Chart
We all know of the inverse correlation that exists between the U.S. Dollar and the Market Averages (SPX, Dow Jones,etc.), but the recent price action may be clueing us in to something more telling. I have highlighted the past 4 sessions in both charts above to illustrate the short-term correlation between stocks and the U.S. Dollar. I find it very interesting that the significant sell-off in the dollar index has been unable to boost stocks, and the metals for that matter. If all asset classes of the market are now somewhat unphased by a cheaper dollar, just imagine what will happen when the dollar explodes out of its next cycle low.

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