Tuesday, August 11, 2009

SPX sights set on 1200? US dollar update

Quick update on the US dollar (bottom chart), we got a bounce off the $77.50 level, today the DXY is down about 0.15%. The RSI is trying to break the 50 line on the daily, last time it tried that it failed, a typical bear market in anything should not see a reading over 50 for too long. If we do, that may be a signal that a bottom is forming, but for now to soon to tell. We have 2 more support levels @ 76, then 74 if it continues to fall. Again the reason I point this out and follow its direction is its relationship with the market I trade, which is the S+P 500 futures. A continuation of the drop in the USD, will only add more fuel to the fire for the bulls to take this thing higher.
Now, once again, long term price projections. I don't neccessarily trade off these projections, but for me it is interesting to try to formulate an educated guess, backed up by facts. This top chart is actually a weekly chart of the S + P. The large green and red bars are Volume by price, helps to show where the majority of volume has come at. It can also tell, how strong or weak support or resistance levels may be. Now as noted on the chart, if indeed this was a breakout of the inverted head and shoulders pattern, which I believe it was, a reasonable price target measured by measuring the distance from the neckline to the head, would come in at the mid 1200's level.
Now look at the volume we have had above us, little to none. Which could mean the path to be relatively clear to the upside, and resistance levels will be weak. However, the steepness of the drop we had last fall could be the reason why volume was light, it simply fell too fast to build up a volume base. Either way though, it is worth noting. So, in summary, this intermarket relationship may very well have the dollar continuing it drop, catapulting the SPX up into the 1200 area by years end even. I don't think that would be too far fetched. Remember though as traders, take one day at a time, there is still a whole heap of bad news and "bubbles" that could burst and throw a complete monkey wrench into this theory. Just food for thought, and speculation for the time being.