Stocks closed a bit higher today. The markets attempted to sell off a bit after the previous two day powerful short-covering rally, but most indexes edged higher to make it three gains in a row. There isn’t much to show on the charts, as they look much the the post from yesterday with just a small bar added to the right. However, the Nasdaq/QQQQ looks like it is successful so far in taking out that minor pivot that I drew on the chart yesterday. Trends are still down with short term momentum up, so will still treat this as a counter-trend rally until there is more evidence that a trend change has occured. My gut feeling is that the trend will remain down, but have to be open to any occurrence.
The US Dollar made some recovery today. It tried yesterday and failed to close near the low. But today the rally held. The trend is still down and the first overhead resistance is still a ways away. I drew red line at the previous resistance pivot. The divergence in momentum was a hint that some up-move would occur, but that isn’t enough to change such a powerful downtrend. What is needed it a penetration of that red line, the blue trend line to change place, and then a retest of the breakout point to confirm the low is in place. That could take some time. Bottom picking is very tempting here.
The crude oil chart looks much like the inverse of the dollar index chart. There is a pivot just below, where I drew the red line. There was a momentum divergence down within the context of an up-trend. Momentum is sitting in the oversold zone with prices sitting near the pivot and beneath the trend indicator lines. This market looks like it is sitting on the edge of a cliff ready to plunge off. It would be nice if the pivot could break and then rebound to re-test the breakout, which would allow the trend indicator to turn negative. I don’t think things will unfold that conveniently. If that pivot breaks there could be quite a bit of long liquidation by funds. I’m sure there are many traders looking at that same breakout point. If nothing else they will probably gun for stops. As with all breakout from pivot areas, best to watch carefully for the fakeout of the breakout. If stops are run but no further selling takes place, the market will snap back. My gut feeling is oil will be much lower in the months ahead based on it’s own market supply and demand, and if the dollar rallies that will add further to the drop. Traders seem to be giving up on the sure thing of $100 and higher oil. It would take some major news event to spark a rally from these levels in my opinion. The price where it is has already priced in Iran tensions and Chindia demand.