On the move: US Dollar Index

Been waiting for a 5 wave advance on the US Dollar Index and it seems it is here.

Although, I may be jumping the gun higher since it the confirmation will be on prices exceeding 83.43 (symbol /DX, US Dollar Index ETH). The reason being that the personality of today's advance is impulsive on the 15 minute chart. If 83.43 is not exceeded tonight (when Europe starts to trade), then short term bearishness will follow.

On the 15 minute chart, the 5 up move is in the works. Wave III is almost 1.61 multiple of Wave I.

Again, waiting for the confirmation for prices to exceed 83.43!

On the move: Treasury Bonds

These are short term charts with short term outlook. But it looks like the 10 year Bond is poised to move higher from here.

The mainstream media is already reporting that Bonds are in a "bubble". Retail Investor are buying Bonds at a historical level. One can anticipate the shock and awe (more so dismay) of Mutual Fund Managers who are looking at capital outflows. One possible outburst: "How dare the retail investors douse their fingers in Bonds! They will surely burn when this bubble bursts."

Buyer beware: There is some merit in this argument. "When" the bubble bursts, it will surely harm a lot of participants. But till then Treasury Bonds seem to go higher.

Many times the bubbles inflate further before bursting!

On the 15 minute chart of US Treasury 10 Year Note, it looks a running flat a-b-c correction is over and the trend is resuming upwards in 5 waves. A 3 wave correction will be the confirmation that prices will trade above 126.

US Dollar Index and insomnia

Major moves in Forex markets occur in the wee hours of the morning (after midnight) of Pacific Time. The choppy action in the US Dollar Index since 11 AM PST (7-13-10) has been frustrating. Numerous profit opportunity have been missed already in search of 83.5 target which is elusive so far. The trade drags on; draining a lot of emotional and physical energy.

A lot of patience and stamina is needed. Similar to "The old man and the sea". I am most certain that if "The old man" was a trader, he would have been a great one. Perhaps amongst the very top ones!

I for one, need to wait for 83.5 to hit in the next 2 hours. That area is getting pretty close to the correction target. I am not sure if the green back starts to rally from there or it just chops around for a couple of more weeks and then levitate towards 88. Currently the broad market seems to jubilant over Intel's numbers and looks like an opening gap. Is the market getting ready for a last hurrah and then chop lower? It will be known in the coming weeks.

In any case, the greenback is more likely to find its bottom with the market top!

EUR/USD overnight story

The EUR/USD high of 1.2722 on 7-8-2010 was significant. On the 15 minute chart, it looks like the pair is coming down in 5 waves. Although it could change if 15 minute bar closes above 1.2616. That would negate the 5 down count.

Even if it is 5 down, whether the 5 down is impulsive or part of a 5-3-5 Zigzag still remains to be determined.

In either case, one of the trade with good risk/reward is to Short EUR/USD (currently at 1.2593) with target to cover at 1.2540. Stop loss being 1.2620.

On being crossed

The nth version of DOW 10,000 hats are in vogue again! S&P 500 has jumped 52 points on closing basis in the shortened trading week. The Bulls are jubilant and the Bears are once again dismayed that S&P 875 seems way too distant.

On closing basis, the bottom of SPY (ETF for S&P 500) was on 3-9-09 at 65.98. The Golden Cross (50 MA- simple moving average, daily crossed from below the 200 MA) happened on 6-18-09 after 101 calendar days and after 24 SPY points (about 240 S&P 500 points).
Presently, the top of 4-23-10 at 121.24 lead to the Death Cross (200 MA crossing below 50) after 75 days and 15 points.

The bullish cross signal came after 24 points of rise and SPY advanced 31 points afterwards to the very top. The bearish cross signal is here now after 15 points of decline. If this bearish signal does indeed play out, how far the decline will go? The first support is at 86 (20 points from cross) and then at 65. The real fun place to go bearish can be 109-110 where the failure to surpass the resistance of 200 DMA will discourage the Bulls.

The earning season is getting started. Fixed Income instruments are taking a breather after their advance. Greenback is correcting its uptrend. EURO is breathing again. Gulf Spill has replaced the plight of sovereign default risk from the headlines. It seems like happy days are here again. Was the recent decline just a bump in the road and the markets are ready to soar again? Did someone order DOW 15,000 hats?

Looking at the volume trend, one can see the accumulation area and then gradual decline in volume as the market trended up. One can also note the distribution near the top and the increase in volume on down turns. The technical picture is pretty clear; 86 on SPY is closer than it seems.

The conservative Option idea can be to start selling OTM (Out of The Money) Calls when SPY is 109-110. Even more conservative is start putting on Bearish Call Spreads and if the market starts to decline, leg-out of the Long Call and buy Puts.
Of course, the other idea is to buy Puts outright in weak tickers; but that does come with negative theta, while selling Calls or Bear Call Spreads will give positive theta (Time Decay).

Dismal corporate guidance can be a bearish trigger or vice versa. Wide-spread top line growth with encouraging guidance can boost the bulls. Watch out if the earnings are only boosted by shaving the bottom line. That will bring SPY 86 closer!