Weekly Dollar Index Chart

Over the past few days we have built a picture of the dollar index that looked like a longer-term buy signal could come during the first quarter of 2010. But what about the healthy rally of late? How does that fit into the picture? Today’s analysis looks at the weekly chart of the US Dollar Index.

An unrelenting downtrend has been unfolding since the March 2009 rally high in the dollar. Note that this is when the equity markets bottomed and started an unrelenting rally. After breaking TDST support in May, which confirmed the primary trend on this time frame is bearish, we had a perfected TD Buy setup complete in late October. The risk level associated with this trade is at 73.97 and is shown on the chart as a horizontal dashed cyan line.

A four period time window should be allowed for a setup to play out. In this instance a bullish divergence between the RSI and Composite index appeared after the market reversed at the end of November, right at the end of the four bar period.

As an aside …. The above may be the key difference in the current daily chart of gold. We have a bullish RSI/Composite divergence but never formed a buy setup. We’ll have to see if that leads to a failed trade. Now back to the dollar.

How far should one expect the dollar to go on this move? Initial targets can always be found below current TDST resistance (which is at 78.94). Currently the medium moving average is at 78.09 and the TD Trend Factor target at 78.36. We need to monitor the daily chart action as we approach these targets.

Bottom line: The weekly chart indicates that, at a minimum, a significant counter-trend rally got underway in late November. Over the weekend I will look at the daily chart to see what kind of staying power this rally might have.

Technical Analysis of for longer-term positions:

Dollar Index: Out. (0.65 point loss after 1 trade). We were able to break through TDST resistance yesterday, as well as the TD Sell Setup risk level. Both events painfully reminding us that we got out of our long too soon. What caused this mistake will be explained in the next post.
World Gold Index: Long from 1139.20 on 12/16/09. Will 1101.20 hold as support? If not I am out on a close below that level.
Cash SP500: Out on a close below 1085.89.
10 yr Bond: Neutral, waiting for a signal.
CRB Index: Neutral. Has been consolidating since 10/21/09.

Monthly Dollar Index

After reviewing the quarterly chart of the Dollar yesterday it seemed that we needed one more decline from where we are now to fulfill the sequential countdown. Specifically, we can’t rally above 78.33 over the next two weeks (and close there) and then we must be back below 75.83 by March. We are at 76.87 today. How likely is such a price movement? A look at the monthly chart may help answer that question.

Within the context of the quarterly chart the rally in 2008 failed at TDST resistance. In the monthly chart the rally was able to rally above resistance and wipe the sequential slate clean. The decline from the March 2009 high has now persisted to the point where TD Setup bar #8 is about to print (as long as we close below 78.15 this month). To get a perfected buy setup this market would then have to drop to a new low and close below 76.72 in January.

And so, the monthly chart is confirming the quarterly chart in what has to happen before any buy signals are made. Combining the two we need to end December below 78.15 (which meets the quarterly requirement of 78.33) and then decline below 74.23 in the first quarter of 2010 while closing below 76.72 in January. Note that even if the monthly TD Buy Setup were perfected in January the reaction can take 1-4 bars to develop - and so it could mesh with a quarterly chart sequential buy.

Bottom line: Note that we are talking hypothetical price movement in order to reach longer term buy signals. Tomorrow I will look at the Weekly chart to see what the more near-term situation looks like.

Technical Analysis of for longer-term positions:

Dollar Index: Out. (0.65 point loss after 1 trade). We are hesitating just below resistance with a perfected TD Sell setup in place. If we can’t close above 77.05 quickly we are likely to see a pullback or consolidation develop.
World Gold Index: Long from 1139.20 on 12/16/09. 1101.20 appears to be holding as support. There wasn’t a TD Buy setup but there was an RSI/Composite buy signal with higher time frame charts bullish. Out on a close below 1101.20.
Cash SP500: Out on a close below 1085.89.
10 yr Bond: Neutral, waiting for a signal. It should be noted that the bond yield has punched through TDST resistance on the daily chart and so the bond itself is in a bearish trend. In fact, it may be ending the consolidation since June.
CRB Index: Neutral. Has been consolidating since 10/21/09 but TDST Support (266.74) seems to have held and we are now bouncing.

Quarterly Chart of the Dollar Index

Yesterday we saw that the US Dollar index was in a downtrend on the yearly chart from the 2001 high. On today’s quarterly chart you can see that a TD Sell setup was perfected at that high and that the swing index (orange line) has been making lower lows and lower highs since. Within the downtrend there were two brief bounces (2005 & 2008), both of which occurred after TD Buy Setups were made. The last bounce failed at TDST resistance (dashed red horizontal line)

Over the past year the dollar index has resumed its decline and is now quite close to its previous low and the completion of a TD Sequential buy countdown. If we close December below 78.33 we will have completed bar #12 of the required 13. We then need a close below 75.83 at the end of March 2010 to complete the sequence. Alert investors/traders will want to keep an eye on this, particularly if we get the yearly price/RSI divergence mentioned yesterday.

One take away from the above paragraph is that it seems we need one more decline from where we are now to fulfill the sequential countdown. That is, we can’t rally above 78.33 over the next two weeks (and close there) and then we must be back below 75.83 by March. We are at 76.93 today. How likely is such a price movement? Maybe a look at the monthly chart tomorrow will help answer that question.

Technical Analysis of for longer-term positions:

Dollar Index: Out. (0.65 point loss after 1 trade). We are at resistance now as a perfected TD Sell setup completes. If we can’t close above 77.05 today we may well see a pullback or consolidation develop.
World Gold Index: 1101.20 appears to be holding as support and we are close to making a TD Buy setup bar #9; but it would need a low less than 1110.20 to perfect. But with a RSI/Composite buy signal in place and higher time frame charts bullish: Long on a close above 1132.40.
Cash SP500: Out on a close below 1085.89.
10 yr Bond: Neutral, waiting for a signal. It should be noted that the bond yield has punched through TDST resistance on the daily chart and so the bond itself is in a bearish trend. In fact, it may be ending the consolidation since June.
CRB Index: Neutral. Has been consolidating since 10/21/09 but TDST Support (266.74) seems to have held and we are now bouncing.

Dollar Index Yearly Chart

Today I start a new series of charts on the US Dollar Index. The yearly chart doesn’t have much data and only offers a bit or two of information. The trend is clearly down from the 2001 high. More subtle is the possible bullish divergence developing between price and the RSI (top pane). We’ll have to check back at the end of the year to see if price makes a new closing low (below 76.62) while the RSI does not. If so then we may just possibly get a technical buy signal on this chart at the end of 2010. Tomorrow we will drop down to the quarterly chart.

Technical Analysis of for longer-term positions:

Dollar Index: Out. (0.65 point loss after 1 trade). If able to punch through 76.8-77.05 this will signal continued bullishness. Note that the dollar is strengthening as the bonds weaken.
World Gold Index: Long on a close above 1130.10. 1101.20 appears to be holding as support.
Cash SP500: Out on a close below 1085.89.
10 yr Bond: Neutral, waiting for a signal. It should be noted that the bond yield has punched through TDST resistance on the daily chart and so the bond itself is in a bearish trend.
CRB Index: Neutral. Has been consolidating since 10/21/09 but TDST Support (266.74) has been holding.

World Gold Index Daily Chart

So far we have reviewed all time frames of the World Gold Index except for the daily. The most striking fact is that every time frame is bullish!

The daily chart is different. After the consolidation ended in August this market has been in a strong rally with only a couple of minor pullbacks. When TD sequential reached bar #13 in mid-November price didn’t even bat an eye; we didn’t even get a consolidation. On 11/25/09 we hit TD Combo sell bar #13. This time we reached above, but never closed above, the risk level (1216.60) and then experienced a price flip that caused my system get out on the close of 12/4 at 1161.80.

With the higher time frames bullish this price activity on the daily chart should be considered a correction, and so the goal is to find a good spot to get back on the long side. Price is currently testing TDST support at 1101.20 and a potentially bullish divergence between the RSI and the Composite index has developed.

Bottom Line: With all the higher time frames of the world gold index being bullish there is an opportunity to get long on this pullback. The daily chart is close to a technical buy signal while just above support. Let's see what happens.

See yesterday’s post for current Technical Analysis of for longer-term positions.

Weekly World Gold Index

As explained over the past few days the yearly, quarterly and monthly charts of the world gold index are bullish. The earliest signal possible would be a new TD Setup on the monthly chart but we wouldn’t get to bar #9 until at least March 2010. Now its time to check out the weekly chart.

The displayed chart begins at the Autumn low of 2008. From there we rallied until February 2009 and then consolidated for six months before beginning yet another rally leg. On 9/4/09 we hit TD Sequential bar #13 but never experienced a price flip before reaching the risk level of 1078.10. A month ago (11/13/09) we hit TD Combo sell bar #13 but again reached the risk level (1150.80) before any action could be taken.

Even though this past week finally produced a price flip we can't do anything until the next setup forms. In fact, this week’s decline was so severe that it has produced a potential bullish reversal pattern in the RSI.

Bottom Line: Like all the higher time frames the world gold index is also bullish on a weekly basis. Tomorrow I will complete this sequence of gold charts with a look at the daily.

Technical Analysis of for longer-term positions:

Dollar Index: Out. (0.65 point loss after 1 trade). If able to punch through 76.8-77.05 this will signal continued bullishness. Note that the dollar is strengthening as the bonds weaken.
World Gold Index: Out at 1161.80 on the close of 12/4. Watching 1101.20 to see if support develops.
Cash SP500: Out on a close below 1085.89.
10 yr Bond: Neutral, waiting for a signal. It should be noted that the bond yield has punched through TDST resistance on the daily chart and so the bond itself is in a bearish trend.

Waiting for an initial signal on the CRB Index.