Some Thoughts on the S&P 500 and the U.S. Dollar Index

Tue, Aug 10, 2010 - 3:00pm

The following chart shows the weekly picture of the S&P 500 with the MACD indicator from July, 2002 and suggests a divergence between price and the MACD has been forming since late 2009. The tug of war between the bulls and bears has resulted in a market that has chopped back and forth since May. The "bulls" need to be more convincing with other than beginning-of-the-day gap openings to the upside, up Mondays and last hour afternoon rallies. The "bears" need to more convincing with follow through to downside. As a reminder, the seasonally tough period of September/October looms directly ahead. Fasten your seat belt and hold on.

The following weekly chart of the S&P 500 shows the possibility that a head and shoulders top may be forming. The area of 1,220 should also be noted. It was from that level that the final surge started in June, 2006 which culminated with the top in October, 2007. A 0.618 retracement of the October, 2007 to March, 2009 bear market would be 1,228.

The following daily chart shows the picture of the S&P 500 for 2010. We have illustrated the chart with what could be an ascending wedge. Such formations usually break to the downside as they approach the end of the “megaphone.” A violation of the bottom trend line would signal the completion of the pattern and would suggest a move lower to at least 1,056.

The next chart is a daily chart of the U.S. Dollar Index (DX) that shows percentage swings of the DX since March, 2008.

The following table shows the two major upswings and the two major downswings of the U.S. Dollar Index since March, 2008. The Table includes the percentage changes for other asset classes as well. When the DX goes up, other assets seem to go down. The reverse has also been the case.

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