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SPX, US Dollar, Dow Jones Industrials: Markets Approaching a Key Inflection Point


The outlook has been anticipating higher prices since November 29, but now things get interesting again.

Looking down the road a bit: If the market can get through the congestion zone, then we reach the old resistance zone from 1464-1474. The market was rejected from that zone on three prior occasions.

There's an old trading adage that says, "The more often resistance (or support) is tested, the stronger it becomes." My belief is the exact opposite: "The more often resistance (or support) is tested, the weaker it becomes." The logic behind my statement is that with every trip into resistance, more selling is exhausted. With every trip to support, more buying is exhausted. Eventually, the market chews through all the sellers or buyers in a given zone, and then simply breaks through and runs.

Moving back to the charts, the Dow Jones Industrials (INDEXDJX:.DJI) briefly overlapped its key bullish pivot, then reversed from that zone. When we look at this chart, we are again confronted with the three-wave rally into the 13367 print high (the "tell" I noted way back on October 8) -- and thus I have to continue giving decent odds to the view that new highs beyond 13367 will be reached over the next couple months. Bears have work to do if they want to change that viewpoint.

Click to enlarge

Next up, I want to revisit the Philadelphia Bank Index (INDEXDJX:BKX), which I still believe depicts a five-wave rally from the October 2011 low, suggesting that at least one more five-wave rally to new highs is still needed.

Click to enlarge

Finally, I'd like to update the US dollar chart. This chart could serve as a case study for those who still doubt the value of technical analysis, since, using nothing but the preceding price action, I've accurately anticipated almost every major turn in the dollar since September 2011. The dollar chart continues to hint at a falling dollar over the long-term -- and thus largely agrees with the bull case in equities. Dollar bulls need to break out above 81.46 to invalidate this picture for the short-term and force us to re-examine the outlook. (I worry about this chart now, because one would think I'm due for a miss here eventually!)
No positions in stocks mentioned.
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