|
MARKET
FOLLIES AND THE US DOLLAR INDEX UPDATE
Lower Bollinger bands are starting to rise to meet the upper BB’s that all curled down, confirming the bottom from a few weeks ago. Fibonacci time extensions of various waves are shown near the lower portion of the chart, with a cluster of dates occurring in early January. Short-term stochastics have the %K beneath the %D within the confines of a rising stochastic wedge; as long as the %K remains within the confines of the stochastic triangle, the trend is up. Although the USD was extremely overbought, the present wedge has been forming for nearly two months. Expect another 5-6 days of a topping process in the dollar before a top is put in place. Figure 1
Red lines on the right hand side represent Fibonacci price projections of downward trending wave price action projected off subsequent corrective termination points. Blue lines on the right hand side represent Fibonacci price retracements of the move from August 2007 until mid December 2007. Areas of line overlap form Fib clusters, which indicate important support/resistance levels. I did not add a Babson channel today, but the 61.8% channel retracement level was taken out in October, leading to the subsequent sell-off. There is strong resistance around 76.6, which if broken could see the dollar attempt a rally to 80. Full stochastics have the %K above the %D after breaking out of a six month stochastic triangle. The move at present could see the USD continue an upward trend for another 4-6 weeks before topping out. The short-term trend appears to be setting up for a top, but the longer-term trend suggests this is likely a pause in a longer-term upward move/consolidation. Figure 2
The weekly chart of the USD Index is shown below, with the lower Bollinger bands drifting beneath the index suggesting a bottom of some form is trying to be put in place. The downtrend line in place since 2002 has proven to be formidable resistance, with any potential upside likely to be capped at 80. Should the index manage to break the downtrend line, it will indicate a change in the trend. Fibonacci price projections of the decline from 2002 until early 2005 projected off the termination point in April 2006 are shown on the right hand side (denoted in red). The Fib level at 74.7 held, with the potential for another 4-6 weeks of upside before a top is put in place. Full stochastics have the %K beneath the %D for 20 months, but if one notices earlier data, a negative or positive divergence may take anywhere from 18-24 months before a reversal occurs. The charts suggest at least a sideways action in the market between 74.8 and 78-80 over the next 4-6 weeks before a top is put in place. Figure 3
The long-term Elliott Wave chart of the US Dollar Index is shown below, with the thought path denoted in green. The present dollar decline recently completed wave [W], with the likelihood of 4-6 months of sideways action before continuing its descent. There is the chance probability that the USD simply keeps on declining, but many countries are lowering their interest rates in an attempt to keep their currencies weak too. Figure 4
The Euro/USD chart is shown below. The Euro appears to be completing a corrective move up during the past week, with the latter portion resembling a terminal impulse. A breakdown in the Euro would aid in powering the USD higher. Figure 5
The USD/Yen is shown below, with the potential for upside based upon the depth of the RSI. The USD is likely to strengthen relative to the Yen over the course of the next 2-4 weeks, but remember the unwritten law that China has with Japan will cap the move (China never wants to see the USD/Yen ratio rise above 122. Figure 6
The USD/Canadian Dollar (Loonie) is shown below, with what appears to be consolidation pattern around the parity level. The RSI is forming a triangle, so a move in the above index below 1.0075 would see further downside. Figure 7
The Canadian dollar Index is shown below, albeit not as clear as I hoped for. The upper Bollinger bands require another 2-4 weeks of downside before the next upward move in the Loonie can occur. Full stochastics have the %K beneath the %D with the same matching time required for a crossover to occur. My bank will not allow me to transfer my loan from CAD to USD, so I guess I have to change banks. The CAD is going to go to around $1.40/USD by mid 2009 so anyone who has the opportunity to perform the transaction of taking a loan in USD and paying it in CAD could do well. Figure 8
The put/call ratio chart is shown below, with the %K beneath the %D. A crossover of the %K above the %D will indicate a top in the S&P is in place. Should the %K cross above the %D and fall beneath again, it would represent a continuation pattern. At present, it appears that 2-4 weeks remain before a top is put in place. One further confirmation for a top should see the put call ratio fall to 0.6 or lower, creating a move that extends outside the Bollinger bands. Figure 9
David Petch
I generally try to write at least one editorial per week, although typically not as long as this one. At www.treasurechests.info, once per week (with updates if required), I track the Amex Gold BUGS Index, AMEX Oil Index, US Dollar Index, 10 Year US Treasury Index and the S&P 500 Index using various forms of technical analysis, including Elliott Wave. Captain Hook the site proprietor writes 2-3 articles per week on the “big picture” by tying in recent market action with numerous index ratios, money supply, COT positions etc. We also cover some 60 plus stocks in the precious metals, energy and base metals categories (with a focus on stocks around our provinces). CONTACT
INFORMATION Treasure Chests is a market timing service specializing in value based position trading in the precious metals and equity markets, with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven to be very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested discovering more about how the strategies described above can enhance your wealth; please visit our web site at http://www.treasurechests.info. Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. Unless otherwise indicated, all materials on these pages are copyrighted by www.treasurechests.info . No part of these pages, either text or image may be used for any purpose other than personal use. Therefore, reproduction, modification, storage in a retrieval system or retransmission, in any form or by any means, electronic, mechanical or otherwise, for reasons other than personal use, is strictly prohibited without prior written permission. The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
