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Dollar strength, S&P weakness?

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A previous analysis posted in TRADING2DAY.com analysed the pattern that was forming in the US dollar index. Then we mentioned that a pattern was forming and that it needed to break below the neckline in order to decline as much as the HEAD of the pattern.

USDindex

As you can see in the daily chart above, the neckline never really broke and prices bounced upwards towards the purple pitchfork resistance and the . Prices currently trade above the resistance level. This could be the addition of another worrying signal for the US markets.

As shown below, S&P and the Dollar index are inversely related. It is very common and usual that when one rises the other fall.

SPDXY

This is another signal that we should take under serious consideration when it comes to the security of our long positions. Apart from the bearish pattern in Europe, this comes at a time where a correction is very possible in the US indices. Caution is advised. Better safe than sorry.

As always, thank you for taking the time to catch up on my thinking.

A technical analysis term used to describe a chart formation in which a stock's price:

1. Rises to a peak and subsequently declines.
2. Then, the price rises above the former peak and again declines.
3. And finally, rises again, but not to the second peak, and declines once more.

The first and third peaks are shoulders, and the second peak forms the head.

Head And Shoulders Pattern

A chart used in technical analysis that shows support and resistance, and momentum and trend directions for a security or investment. It is designed to provide relevant information at a glance using moving averages (tenkan-sen and kijun-sen) to show bullish and bearish crossover points. The "clouds" (kumo, in Japanese) are formed between spans of the average of the tenkan-sen and kijun-sen plotted six months ahead (senkou span B), and of the midpoint of the 52-week high and low (senkou span B) plotted six months ahead.

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