The US Dollar is in Pit Row Preparing for the Green Flag
- Posted by Greg Harmon
- on July 29th, 2011
The US Dollar has been driving the Equity markets lately. Every twist and turn results in a reaction with equities. No need to look anywhere else for guidance. If the US Dollar Index (ticker: $DX_F or $UUP) is up then equities are heading lower. If it is off then equities are heading higher. So with all the noise from the debt ceiling nonsense and the sovereign meltdown in Europe, what can we determine about the future direction of the dollar? A deep dive seems in order.
The 3 Box Reversal Point and Figure chart using the Average True Range for a box size of 0.91 is shown above. This chart shows a Price Objective of 63.7 as it approaches a double bottom below 71.89. Even without timeframes this is clearly a bearish chart.
Switching to the weekly chart above with the Andrew’s Pitchfork there are several observations to note. First it has tested the Median Line of the bearish red Pitchfork twice and held, but each time the bounce has been unable to escape its pull and move the the Upper Median Line. Next it is currently riding the Lower Median Line of the bullish green Pitchfork, but testing it with a doji candle this week. you can imagine that the last time that it bounced off of the bearish Pitchfork in November 2010 that a bullish Pitchfork drawn then also failed after posting a doji on the bullish Lower Median Line, as seen with the faint gray Pitchfork. If it were to fail again and break below the green Lower Median Line then you could expect it to be drawn back to the red Median Line for new Lows. The Upper Median Line of the red Pitchfork stands as an upper boundary for the present.
Moving to a more classical approach shows the Dollar falling from a symmetrical triangle with the center at 74.80 as resistance. This is below the 3 year rising trend line as resistance, currently at 77.30. There are also a set of imbedded Head and Shoulders tops that have targets respectively at 71.75 near the previous all time low and 59.80. There is support at 74 and 73.5 followed by 73 and 72 before testing the all time low. The Relative Strength Index (RSI) is failing to break above the mid-line and the Moving Average Convergence Divergence (MACD) indicator is waning, both supporting downside action. All of the Simple Moving Average’s are also sloping lower. Finally it has a measured move lower to 68. The one potentially positive from this view is the long legged doji, signalling indecision, and a potential reversal if confirmed.
The view above using Fibonacci levels and Fan lines shows that it retraced over 78.6% of the move higher from 2008 into 2009 before falling back almost completely. Now it has moved beyond the 76.4% retracement level and is finding it to be resistance to the upside. As it approaches the first Fan line again it has rejected there once already. Another bearish view.
In four views three are giving clear bearish signs going forward with some nearby downside support and then targets at 68, 63 and 59. All allow for for some further upside but with resistance at 77.30, not too far away. Seems like the US Dollar is not looking for the news to tell it where to go but sitting in pit row under a yellow flag preparing for the green flag as a sign to move.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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