As I mentioned earlier in the week, my trading plan is to take things slow and avoid the whipsaw. Experience has taught me not to get overexcited by every little wiggle and to make the market prove itself. This week is a great example of slowing things down. On Wednesday, many were declaring a top and that the market was turning south. Yesterday, the market rallied hard in the other direction and many were declaring it as a wonderful buy the dip opportunity. It is amazing how sentiment can change on a dime if you follow every wiggle.
I’ve made a few trades repositioning my portfolio, but generally I haven’t been doing very much. I’m waiting for this to play out and get past all the noise before I start picking a side.
I’ve been mentioning for months that the dollar is my primary indicator of market direction. UDN appeared to break its trendline this week but a one or two day breach does not mean that this isn’t just a protrusion. It is possible that UDN could thrust above the trendline and that the trend might continue. With that said, I did flip over to the UUP chart earlier in the week and note that there is some serious support for the dollar coming which could limit the continuation of this trend.
One might think that the bears won Wednesday and the bulls won yesterday and that the score is 1-1. I would disagree. The bears caused serious damage to the dollar chart and this wedge pattern looks pretty promising as well. Note the low volume on this entire move up and the increased volume on the selling over the past few days. The rally yesterday did not do anything to void out the damage the bears caused.
IWM shows even a more bearish picture. This looks like a double top. Note the volume over the past week on down days. IYT (not shown) also is sporting a double top. So in my opinion, I’m looking for a market reversal but I’m taking things slow and waiting for confirmation. What am I watching for confirmation? I want to see UDN break its 50-day MA. I want to see FXI break its 50-day MA.
A pretty tight overnight range of 1055-1063.
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chartsandcoffee
