DOW Climbs on Back of Rally in US Dollar, and Lower Oil Prices

At the begining of last week, I wrote an article stating that in order for this market to sustain a rally, we’d need some major catalysts to bolster the bulls:

  1. A stronger dollar
  2. Lower commodity prices, including oil
  3. Stability in the financial markets
  4. Improvement in the sales quantities and values of real estate

This week saw exactly what those catalysts can do for the market. Last week the chart for the US dollar hinted a rally, and that’s exactly waht it did this week. Subsequently, crude continued its 4 week decline to close down over $10 per barrel for the week at 115.15.

Trend Reversal or Head Fake

Unfortunatley for traders, this week’s rally didn’t do much for the overall trend. On the weekly chart, today’s big rally took the DOW just past the 38.2% fibonacci retracement from rally that ended in May. The close of 11734.32 left the DOW 90 points below the 200 period EMA which acted as support several times over the past 6 months. Volume also has left me scratching my head, wich just over 4 billion shares traded for the week. For confirmation of a trend reversal, I would have liked to have seen closer to 5 billion shares. Finally, our trend and timing indicators are starting to look like they migh turn upward, but non of them are showing a buy signal yet.

In summary:

  1. We seen no bullish signals from moving average crosses
  2. We’ve seen no bullish signals from our indicators and oscillators
  3. There hasn’t been any confirmation of a breakout indicated by volume
  4. But, all of them are very close

Looking at the price pattern, well, there isn’t a very good one on the weekly chart.


Click To Enlarge

The daily chart isn’t very helpful either

The first thing that sticks out to me is that on the 239 point down day Thursday, more shares changed hands than on both of the 300 point up days. The PPO is comming very close to flashing a buy signal, but the Aroon hasn’t flipped from a bearish indicator to a bullish.

Yesterday it looked like the chart was showing a top triangle, however today’s action broke through the resitance line which means on of several things:

  1.  The pattern wasn’t a top triangle and is invalid
  2. We broke out of the top triangle on the topside and are starting a new uptrend
  3. The price will drop back into the triangle next week and will confirm the pattern

There is quite a bit of over head price resistance at this level on the daily chart between 11,731 and 11,800. Prices reached these levels 3 times in the middle of March, and held there for 4 consqutive days at the end of June.

The Forecast For Next Week

With no real clear indication about the trend, nor any signficant buying signals on the weekly chart, I belive it prudent to wait on some kind of catalyst before trading in either direction. The market digested some pretty bad GDP, employment, and home sales data this week, and still managed to show some gains. This strength could be a sign of mild bullishness.

That catalyst could come on Tuesday morning when Retail Sales and Crude Inventories are released. With regard to retail sales, consumer spending has remained strong even as the economy and the stock market have sagged. However, the economic stimulus package should start to fizzle out soon, and it will be interesting to see the trend in spending. The consensus estimate is a .5% increase, and I would watch that number very carefully at 8:30 AM EST. For a summary of this weeks economic calendar, check out briefing.com

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