DecisionPoint Weekly Wrap -- Dollar In Trouble By Carl Swenlin | July 15, 2017
Rounded top, schmounded top. This week the market couldn't have cared less as it broke through to new, all-time highs. The headline regarding the dollar is not exactly news, but the dollar is getting particularly weak. More on that below.
STOCKS
IT Trend Model: BUY as of 11/15/2016
LT Trend Model: BUY as of 4/1/2016
While my focus has been on the cyclical bull market rising trend line drawn from the February 2016 low, there is clearly a shorter-term trend line that has dominated price action for all of 2017. It was from that line that this week's rally was launched. Then on Friday the PMO crossed up through the signal line, generating a PMO BUY signal. I thought that volume was really lousy for a break to new highs -- Friday's $SPX volume was only 73% of the 250EMA of volume -- but I've been unimpressed by volume for months. It hasn't stopped the price advance, though.
One of the issues that concerned me was the fact that the OBV for SPY wasn't confirming the new price highs, but the following chart of $SPX shows that the index volume did indeed confirm the new price highs.
On the weekly chart the market has remained in the top half of the rising trend channel for about eight months. The weekly PMO has been moving sideways at a high level for several months. This reflects a steady, positive rate of change in this time frame.
Short-Term Market Indicators: These indicators are getting somewhat overbought, but there is still plenty of upside movement possible.
Intermediate-Term Market Indicators: All these indicators have bottomed and crossed up through their signal lines. The bottoms are far enough down on the scale to allow for a satisfactory period of positive movement before they become overbought, but they were hardly what we would call oversold when they bottomed.
Conclusion: I really thought that we were going to see a little bit of downside this week. I mean, just a little bit, right? But no. This market is stronger than ever, and it just won't give anything back. The chart just above shows a negative divergence on every indicator, but so far it hasn't mattered. To quote Jared Dillan's The 10th Man newsletter, "Bull market, dude."
DOLLAR
IT Trend Model: NEUTRAL as of 3/21/2016
LT Trend Model: SELL as of 5/24/2017
UUP appears to be in trouble as it moves within a descending wedge formation. This is normally considered to be a bullish pattern, with expectations of an upside breakout. However, note that the price bounce off the June low failed to reach the top of the wedge, and price is now below that prior low and approaching the bottom of the wedge. The implication is that the wedge will resolve bearishly, and that the price decline will accelerate.
The UUP weekly PMO has reached a level that has proven to be oversold for about the last five years, and price is approaching support near the bottom of the two-year trading range. There is still room for the selling promised by the daily chart above, but it could easily abate at the obvious support.
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