Saturday, February 11, 2012

The Weekend Report

Dow Theory
One of the basic concepts of Dow theory is the "principle of confirmation". To put it simply, one average must confirm the other average to validate the trend. As of right now, the Dow Jones Industrial Average has produced a higher high, signaling the birth of a new uptrend. However, it remains to be seen whether The Dow Transports can regain the previous high made in July. Unless the Transports can also produce a higher high, we must remain suspect to the new highs in the Industrials Average. It might also be important to mention that the Dow Industrials is now approaching a tripple top, which is a pattern known for its powerful resistance levels.

The U.S. Dollar - Daily Chart
 If this is indeed the turning point for the dollar, several things should have occurred that did not. First, when prices resume in the direction of the trend after a retracement, especially after an intermediate cycle low, the expectation is for an explosive move. Friday's session had the chance for that scenario, but the early morning strength faded into the close. Second, The Dollar should contend with its drawn trendline to justify the angle at which prices ascend. 

The U.S. Dollar- Daily Chart
Under this scenario, the assumption is that stocks produce a reversal as early as Monday. That would almost guarantee a surge in the dollar, probably powerful enough to breakthrough the previous cluster zone in one session.

The S&P 500- Hourly Chart
There is very little wiggle room left to complete the Rising Wedge Pattern.  Look for a violent break of the lower trendline to validate the pattern. That will signal a reversal on the hourly chart, but spill over to the daily time frame as well.

The S&P 500- Daily Chart 
Friday's close found support at the 10 Day moving average. I have highlighted the wick of the candlestick to represent the buying pressure of the trading session. It is important for you to know that we must close below the 10 Day Ma for a reversal to occur.  


  1. Great charts as usual. I think the trend is reaching an exciting climax.