A Quick Glance at the Key Level for the US Dollar and UUP

By Corey Rosenbloom | March 16, 2010 | 2:26 PM |  0 CommentsTweet This

The US Dollar Index, and thus the popular ETF UUP (NYSE: UUP), are challenging a key 'line in the sand' which could determine whether we get a 'support bounce' here... or the more ominous rounded reversal and potential head and shoulders pattern plays out to the downside. 

Let's look at this level and why it is important.

First, the Daily chart of UUP shows our confluence support zone:

The key level to watch - as the dividing line between a bullish swing back up... or a bearish breakdown to lower levels - is $23.40.

Why?

It's the 50 day EMA which currently aligns with the 38.2% Fibonacci Retracement as shown from the January 2009 low of $22.60 to the recent high at $23.90.

Price also formed a classic negative momentum divergence into these levels, so a pullback was expected.  Pullback yes, but how far will it retrace?   That's why we need to watch this level very closely.

Should the dollar index weaken here, we could see the Head and Shoulders Pattern - or Rounded Reversal pattern (both bearish) - resolve to get its downside target of $23.00 (a rough estimate of the Head and Shoulders, which also happens to be near the 61.8% retracement as shown).

If that doesn't happen, then the dollar will strengthen off this confluence support area to make a potential run for the highs (which would be bearish for gold and oil and perhaps stocks as well). 

Let's zoom the perspective in to the 120 minute chart to focus on the pattern and the Fibonacci Level to watch.

This time I've stripped off all the indicators so as to focus squarely on price, including the prior swing high from late January also at $23.40. 

You can also visualize the "Rounded Reversal" pattern and potential Head and Shoulders pattern forming with price alone.

Speaking of that pattern, let's see the 'arc' and Fibonacci levels on the actual Dollar Index ($DXY):

The structure is the same, only I've drawn the 'arc' that comprises the "Rounded Reversal" pattern.

The level to watch on the Dollar Index is $79.50.

With today being a Fed Day, all eyes will be on the announcement (specifically on the text and guidance) and how that ripples through the markets.

Remember, a stronger dollar is bearish for commodities such as oil and gold and generally stocks, while a weaker dollar is bullish for gold and oil as well as the stock market.

Keep track of these Inter-market Relationships and opportunities with our Weekly Inter-market Report membership service (http://premium.afraidtotrade.com/)

Corey Rosenbloom, CMT

http://blog.afraidtotrade.com

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Breakout Level to Watch for Cup and Handle on XHB Homebuilders Chart

By Corey Rosenbloom | March 11, 2010 | 3:13 PM |  0 CommentsTweet This

Not only has the homebuilder sector received attention lately (investors often monitor this sector to assess the health of the economy via home purchases), the chart of the XHB Homebuilder SPDR ETF is showing a very interesting pattern that's worth a glance.

Whether or not the pattern plays out is yet to be seen, but we can at least take a look at the current support and resistance areas to watch for clues for the next move, particularly as we face a potential breakout here that will either pick up steam... or taper off into a sell-off.

Here's the overview Daily Chart of the XHB:

Price remains in an uptrend as evidenced by the positive moving average structure, price being above all moving averages, and price continuing to form higher highs and higher lows.  That's bullish.

What's not so bullish right now are the doji candles at the $17.00 level and the negative momentum and volume divergence—all of which serves as non-confirmations and is not what you would expect to see as price is potentially breaking a key resistance level in a bullish trend.

It's assumed that whatever happens as the S&P 500 tests the critical 1,150 resistance level will mirror what happens here in the Homebuilders.  Should buyers continue pushing the market higher and break above the 1,150 S&P 500 level, then homebuilders would also break in a potential impulse move to new highs. 

On the same token, should the broader market pull-back here, so would XHB.

But there's something else going on that's at least worth mentioning.

William O'Neil made the "Cup and Handle" price pattern popular in his famous book How to Make Money in Stocks, and the XHB is forming one of two patterns at the highs.

First, we could be seeing that classic "Cup and Handle" pattern, as I've labeled on a separate chart, or we could be seeing some sort of Inverse Head and Shoulders Pattern.

Here's a focused view on the Cup and Handle Pattern:

The "arc" trendlines represent the "cup" and then the "handle," and O'Neil teaches to buy on a solid/confirmed break above the resistance area, which now rests near the $17.00 level.

As stated earlier, we would expect volume and momentum to be confirming a potential large-scale price breakout that would accompany a Cup and Handle Pattern - we're not seeing that now.  That doesn't mean we can't see it, but that we would expect volume to increase to accompany and confirm any potential breakout here above $17.00.

Another point of note is that Inverse Head and Shoulders and Cup and Handles often form at market "bottoms" instead of forming after sustained (one-year) rallies, so keep in mind that these patterns are not forming in the "price life cycle" as expected.

So, from a swing trading standpoint, watch for a confirmed break above $17.00 for a potential tradable move up to $20.00 or beyond, though if sellers step up and push prices lower at the resistance here (again, with reversal/indecision candles along with negative volume and momentum divergences), be prepared to book profits if you're holding long and consider re-establish positions on a solid "all clear" signal above the $17.00 level.

Whatever the resolution of these patterns, it should be interesting.

Corey Rosenbloom, CMT
http://blog.afraidtotrade.com

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Fibonacci Retracement Levels on the Four Main US Equity Indexes

By Corey Rosenbloom | March 09, 2010 | 1:42 PM |  0 CommentsTweet This

A few readers have been asking for updates on the current Fibonacci Retracement Levels on the major US Equity Indexes, and I thought it would be a valuable resource to organize the four main US Equity Indexes with their respective Fibonacci Retracement Levels to watch, as drawn from each index's top in late 2007 to their bottoms in early 2009.

This post can serve as your reference to these unchanging and important levels traders of all methods are monitoring - and you can too.

Dow Jones:

The Fibonacci Retracement Levels on the Dow Jones are as follows:

61.8%:  11,246

50.0%:  10,334

38.2%:  9,422

S&P 500:

The Fibonacci Retracement Levels on the Dow Jones are as follows:

61.8%:  1,228

50.0%:  1,121

38.2%:  1,014

NASDAQ:

The Fibonacci Retracement Levels on the Dow Jones are as follows:

61.8%:  2,252

50.0%:  2,063

38.2%:  1,875

Russell 2000:

The Fibonacci Retracement Levels on the Dow Jones are as follows:

61.8%:  660

50.0%:  599

38.2%:  539

Keep in mind that many traders have these levels memorized for their respective index, and that's generally a good idea.

It's not that Fibonacci is 'magic,' but that traders monitor what happens at these levels, whether price retraces back to the downside or pauses an upward advance (both as a spot to take profits or potentially enter a counter-trend position) and as a spot to re-enter or add to existing long (buy) positions once a major retracement level has been broken. 

The thought process is that "Now that price has cleared that hurdle, it is safe to expect price to continue rallying to the next level."

As a quick note, the NASDAQ and Russell 2000 Indexes have recently cleared the important 61.8% Retracement hurdle, which is a very bullish sign.

The S&P 500 and Dow Jones index recently cleared their 50% retracement level, which suggests that price could continue the rally to challenge their respective 61.8% levels as shown above.

Use these grids as a reference for levels to watch both for targets to play for, and "all clears" once price officially rises above a key level.

Corey Rosenbloom, CMT

http://blog.afraidtotrade.com

(All charts created with TradeStation)

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Copper's Recent Ascent Warrants Attention

By Corey Rosenbloom | March 04, 2010 | 4:58 PM |  0 CommentsTweet This

Copper and other recent metals have been especially hot over the last few weeks, with copper prices moving roughly 25% higher since early February - that's  a big move in a month for a commodity!

 Is the move overdone?  How can you play copper without trading futures?  Let's take a quick look at the daily chart of the popular Copper ETN - (NYSE: JJC).

 The ETN JJC is the UBS iPath Copper fund, which attempts to mirror the Dow Jones/AIG Total Copper Sub-Index Returns.  Other than the DBB (which is the PowerShares Multi-Metal Trust), JJC is one of the best ways for investors or traders to play copper without using futures contracts.  It's not as liquid as the major ETFs, but it will suffice for most investors. 

That being said, we see - using simple technical charting - that the fund has some hurdles to overcome if price is to continue rising.

That's because we're seeing a shooting star/doji candle (often associated with reversals) candle forming at the upper Bollinger Band at the $47.00 per share level (roughly the $345 level in copper prices themselves). 

Beyond the potential reversal candle at the upper Bollinger Band, we're seeing a negative momentum divergence form in the 3/10 MACD Momentum Oscillator - that's a non-confirmation of the recent price break above the $46.00 level.

We also have a pure price resistance level coming from the recent recovery high at $48.00 per share - so even if price did rally from here, it would have to challenge that overhead resistance level.

Odds seem to favor at least a retracement swing from here, though any sudden break to new highs above $48.00 would ring the bullish "all-clear!" sign.

Until then, we could see a downward swing to test the $44.00 daily moving average level... and if sellers push under $44.00, then we would expect a deeper reversal, making the $44.00 level the line in the sand between "just a simple pullback" and "a reversal to test lower prices."

Corey Rosenbloom, CMT

 http://blog.afraidtotrade.com

_____________________
Corey Rosenbloom, CMT

President, Afraid to Trade©

http://www.afraidtotrade.com

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From Breakout to Resistance in GLD

By Corey Rosenbloom | March 03, 2010 | 12:50 PM |  0 CommentsTweet This

Like the S&P 500 (CBOE: SPX), Gold broke above a key declining resistance level recently and is in the "open air" zone which is set to challenge the next overhead resistance target.

Let's take a quick look at the Gold ETF (NYSE: GLD) to see this breakout, note the low volume breakout, and label the next likely target/resistance zone that might give buyers trouble.

This is just a simple daily view of the tradable GLD ETF, noting the descending trendline that connected the December $119 price high to the January $114 high and then the February $110 high.

The gap above that level is often identified as a momentum burst or impulse that is a signal that the trendline is definitively broken, and odds favor a move to the next level of overhead resistance.  This is an opportunity for aggressive swing traders.

We see price rallying to challenge the next resistance level at $114, though price paused briefly at the resistance from $110 before breaking now to the next level.

I think this is a good reference example for how to play price bounces and breaks above key resistance, targeting these levels, taking profits, and then seeing how price reacts to simple prior price swing highs.

For now, the next level remains $114.00, or the January 2010 high as labeled above with a horizontal line. 

The thing that gives investors a slight pause is that the recent breakout occurred - like the S&P 500 - on declining or stable volume.

Usually, to confirm a bullish breakout, you want to see volume "go with" the breakout, or increase as price breaks above resistance.  This is a sign that short-sellers are covering and buyers are stepping in, putting on new positions, driving price higher and creating a 'positive feedback' loop.

Volume provides the "floor" under a move to firm it up and make it more stable and less-risky to trade.  When we see price breaking out and rising on stable or declining volume, it serves as a non-confirmation.

For now, let's see how price reacts to the $114.00 level, which would be a logical place to take profits if long, and then consider a re-entry if buyers continue to push price higher through this zone. 

Otherwise, watch also for signs of volume to increase as price continues to rise, or else we could see a classic retracement or sell-off swing down as price falls under its own weight, not supported by volume and fresh buying.

Corey Rosenbloom, CMT
http://blog.afraidtotrade.com

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