Tuesday, April 13, 2010

Markets at a Critical Juncture.

U.S. Dollar Index.
The USDX has reached a point in both time and price where the market will have decide which direction offers the least resistance.

The top part of the USDX chart is a good example of how Fibonacci ratios and vectors interact during a market campaign.
Points to consider in the chart below.
  • The waves of the rally are revealed in the MACD study.
  • From the December low @ 74.23 the market has remained above the 1.618:1 uptrend line. Prices temporarily fell below this natural support during Wave 4 correction. This week, prices broke significantly below the 1.618 support line--finding support at the 89 ema.
  • The break of this trendline was coincident with the termination of the cycle represented by the blue 2r circle. (2 times the vector representing the Dec 2009 initial rally off the 74.23 low.) Note that the 1.618r cycle caught the bottom of wave 4.
  • Longer term (lower part of chart graphic): Two Fibonacci retracement levels are providing both resistance and support. The recent 82.24 high is near the 61.8 percent retracement of the March 2008-March 2009 bull campaign--and also near--the 50 percent retracement of the March 2009-December 2009 decline. The 38.2 percent and 50 percent retracements of the respective lows are providing support near the bottom of wave four.
  • The USD met resistance at the 2.618:1 downtrend line off the March 2009 high.
  • The .786 vector representing the March 08-09 rally is fully extended at the recent high (red circle). Its influence is evident by the fact that it was coincident with the Dec 2009 low. The market then climbed the arc until the top of the third wave. (early March 2010)
right click mouse for chart options

U.S. Equity Markets.

The equity markets have continued to rally into the April 12-13 'Energy Date". However, prices have not yet reached the harmonic 1215-1223 level but signs of exuberance and exhaustion are becoming evident.
A Contrarian's dream was revealed on the cover of Newsweek yesterday. This is not to say that the jubilation cant get anymore boisterous--but the cockiness of the herd is beginning to show.

Volume momentum is continuing to ebb--forming a downtrend while the S&P rallies higher. A bull needs reinforcing volume to sustain itself.

The 5 Day Trin has turned up from being at an extreme that often suggests market exhaustion of the current intermediate trend. This adds to the mounting evidence of a tired market.
The chart below show the natural support structure of the current rally which commenced March 06 2009.
  • Prices stayed above the 1.618 uptrend line until the correction that followed the 1101.36 top.
  • The .618 portion of the vector representing the March 2009-October 2009 rally (666.79 to 1101.36) is exhausted in the current time frame. As the blue circle indicates, prices are breaking to the outside of this cycle--which means other dynamic forces within the remaining .382 of the cycle will exert their influence. Prices at cycle termination points often become volatile. Monitor the VIX for clues with regard to imminent market volatility.
  • Prices are contained by the red uptrend line extended from the 1101.36 high and to the 1150.45 high. With 1215-1223
right click mouse for chart options

The chart below may hold the key to how the USDX and S&P will resolve themselves. The neckline is holding on the 30 Yr Treasuries and a spirited rally is currently underway. The action in the bonds over the next few sessions may determine what the other markets will do.

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