Dollar Rally Setting Up Near Term
October 24th, 2009WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
The U.S. Dollar Index is in a sharp downtrend, but it’s approaching an uptrending support line on the weekly chart. Additionally, multiple indicators on longer intraday intervals are trending up.
I’ve got to call bullish divergence on this one.
Dollar bears and gold bulls, watch out, over the next couple of weeks.
U.S. Dollar Index, Weekly Interval
U.S. Dollar Index, Four Hour Interval
Update: More Ways of Looking at the Current Divergence Situation
In the chart below, I show additional divergence in ROC and Stochastic Slow, along with lower ADX pivot highs. Note the upside candle breakout.
It would be irresponsible of me to try to summarize ADX here for those who aren’t familiar with it. I’d encourage you to look into ADX and J. Welles Wilder’s other work for yourself in much more detail: New Concepts in Technical Trading Systems by J. Welles Wilder. While there are thousands of other sites on the Internet that discuss ADX for free, I wanted to cite THE source for those are are interested.
CRITICAL POINT TO REMEMBER: The reason we’re paying attention to divergence patterns in these faster intervals is because USDX is closing in on a critical support on the WEEKLY chart. However, because the weekly interval is relatively slow, we drill down into the faster (and noisier) intervals in an attempt to glean more timely insights.
U.S. Dollar Index, Eight Hour Interval
UPDATE: Options Plays
SPECULATORS ONLY: The short term channel on the dollar remains bearish. If the bearish channel holds into Monday’s New York session, consider buying November 09 call options on PowerShares DB US Dollar Index Bullish (UUP). Any further moves down on the dollar (but above the mid 74s) make bullish option plays more attractive here, in my opinion.
November 09 puts on SPDR Gold Shares (GLD) would be another way of going.
How can you see a bullish pattern? I see the RSI and MACD both is positive territory on your charts, no where near over-sold levels.
Thanks for the investopedia link. I’m often annoyed by my lack of understanding of some investment terms. This goes in the bookmarks.
Dear Kevin:
I have a lot of respect for your technical analysis. I have been following your advice and it has been very accurate. Although I am not interested in doing technical analysis myself I would be interested in piggybacking on yours. Are you interested in managing small amounts of my money and doing a split of the profits? I understand that there are no guarantees but would be willing to take the chance of loss. If so please e-mail me.
Alex
@Mad Ruski
I appreciate your confidence in my work, but there are two reasons why I definitely cannot accept your offer.
First of all, I’m not a licensed financial adviser. This area is highly regulated. It would be illegal for me to manage any of your money, trade on your behalf, etc.
Second, it took me many years to acquire the confidence and discipline required to be able to pull the trigger on my own account without feeling like I was going to crap my pants. I can’t imagine the stress involved with facing the market with another person’s money on the line.
Just in case you don’t know, I’ll restate my investment objectives: Most of what I do deals with preserving what wealth my wife and I have managed to save. This involves diversification and makes for some pretty boring performance! Boring is what I like when it comes to our savings. I don’t do this analysis with any hope of “growing” the portfolio. That may sound strange, but the fact of the matter is that I’m just trying to hold on to what we have. There’s systemic risk in the market. My trading activities reflect that perspective.
Now, at the same time, I’m actively involved with very high risk speculation, research into automated trading systems and unusual forecasting methods, etc. (I don’t write about this stuff much on Cryptogon, but occasionally, some of it slips into a post like this. One of my research areas on the automated side of things involves divergence detection on much faster intervals.) But the amounts of money that I place at risk on these activities—when real money is used at all—are trivial.
I don’t really see a middle ground in investing. On the one hand, I see extremely conservative wealth preservation strategies (diversified cash, gold, food, etc.). That’s where about 98% of our money is. On the other hand, woowoo, ridiculous, “impossible”, speculation with tiny amounts of money boost overall profit. I don’t have anything like enough confidence in my high risk/high reward methods to allocate more money to them at this time.
Thanks for your thoughtful response. No harm in trying 🙂