Dollar Ignores QE3

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(This is an excerpt from recent blogs for Decision Point subscribers.)

First a funny story. In Los Angeles the other day, some bank robbers trying to escape the police were driving along throwing money out of the windows in order to thwart their pursuers. In a Tweet someone had labeled the link to the YouTube video, "Bernanke Pursued by Police in L.A."

While stocks have responded favorably to the QE3 announcement, the U.S. dollar continues to tank. The chart snapshot below of the Dollar Index ETF (UUP) was taken midday Friday, so there is still time for a reversal before the close, but at the time of this writing we can see that a logical support line has been violated. We would not characterize that line as being significant. It should be noted that the dollar has been declining snce the July top, so QE3 only adds to the weight dragging the dollar down.

Screen shot 2012-09-14 at 10.31.22 AM

A possible ray of hope is that the PMO (price momentum oscillator) above is very oversold based upon the one-year range; however, when we zoom out on the longer-term daily chart below, we can see that the PMO is far from being oversold on an historical basis. (For future reference the typical PMO range for a market or sector index is about +2 to -2. This emphatically does not apply to stocks, which can have very wide ranging PMOs.)

Screen shot 2012-09-14 at 10.18.47 AM

The weekly chart offers more long-term clarity, showing how price has broken down from a bearish rising wedge pattern. There are possible support levels below, but the most obvious is the congested area in mid-2011 at about 21.00.

Screen shot 2012-09-14 at 11.03.01 AM

Technical analysis is a windsock, not a crystal ball.

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About Carl Swenlin