Wednesday, October 6, 2010


Let the currency wars begin!    At some point Mr Market is going to be done pricing in QE2 and the dollar will take a breather.  We might be at one of those points looking at the charts.

A look back to December 08 is helpful.  On 1st December 08 Bernanke said he may use less conventional policies, such as buying Treasury securities, to revive the economy and avoid a deflationary spiral.  December 15-16 FOMC meeting, they lowered rates to 0% and made it official that they would pursue a policy of treasury purchases or QE.  The dollar index bottomed out on December 18 and then rallied until QE2 was actually implemented in March 09.   Obviously the drop in stock indexes at that time was a factor but the point I am making is that the while the dollar did drop dramatically for a bit on the news it was soon got a foot hold and didn't drop again until it was actually implemented.  If the data still keeps coming in reasonably good, like todays ISM numbers then there doesn't seem to be an urgent need for QE2 and Mr Market might be disappointed at having to wait.

Dollar Index weekly chart 
The bottom of this wedge is starting to look inevitable, it is not pretty.  If we make two equal measured moves lower from the June high then the target level is 74.93 on the cash dollar index.  However we are back at the 61.8fib of the 08low and 09 high and also a level that was resistance in 07 and support during the first big drop following the announcement of QE1 in December 2008 so it would not be a surprise to see the dollar bounce here and retest 80.00 before continuing down.  The extreme negative sentiment for the dollar at the moment would support this.

To be clear, I think we broke from a very big diamond pattern this summer and this market is going much higher, but it might not be in a straight line.  We are at the top of a new rising channel and 1158 is two equal measured moves off the lows this summer.  While 1150 is a very big pivot level for the S&P 1161 is also a important resistance level.  I think we correct lower here and back to the bottom of the channel but ... a close above 1161 this week changes my view and no correction until we take out the April highs.
I made this chart last week showing fibonacci timing from the summer lows which has worked well so far.  It shows Tuesday 5th October as the next market turn date, we will see if it plays out.

Prices have broke through the top of a rising channel set from mid-September, with the bulls now poised to test the 176.4% Fibonacci extension of the 6/21-7/28 decline at $1348.02. Initial support lines up at $1332.21, the 161.8% Fib
No price action to suggest a correction yet but like the S&P yesterday Tuesday) was a fibonacci timing turn date.

At the top of the rising channel that has held it all summer and today's candle a bearish hanging man warns of a potential reversal.  The 1.27fib at 0.9760 is fib resistance for now but as Gold has shown, rising channels don't always resolve to the downside.  On the 4hr chart AUD looks to have broken down and I like this short here for a low risk countertrend swing.

Xiphos Trading has a good chart showing the weekly diamond pattern in Crude.  It does look like a breakout but trendlines with only two reference points are a bit dodgy.  However if we break close this week above August's swing high at 82.97 and the 78.6 fib retracement then it is a pretty clear breakout to the upside.

Ignore these two, I am just posting some inside bar examples for someone:


  1. yo yo, good to hear for you again Nic, hope your feeling better. ADP today also, we may well get that turn today but prob a blow off top first. Is everyone long yet....

  2. Hello :)
    I am hoping yesterday was the blowoff. If S&P closes above 1161 then I don't think we get a correction here.
    COT reports show big money building big short position in Nasdaq ...