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SPX and US Dollar Update: Market Clues in the Dollar?


The market has given every possible indication of at least a short-term top. Perhaps the dollar can help shed some additional light.

This week, we've looked at about a dozen indicators that seem to be suggesting that the market is forming a top. We've looked at divergence indicators, candlesticks, past market history, Elliott patterns, sentiment, and numerous other things. I'm just about out of arguments at this point; the market either makes a top here, or it doesn't.

Yesterday the market formed yet another potential reversal candlestick, this time in the form of a spinning top (long upper and lower wicks, small real body). This was a white spinning top on SPX, which is not a terribly reliable reversal pattern, unlike several other patterns it formed this week that were "more" reliable, yet failed to work. Maybe the less reliable pattern will emerge as a winner.

The action Tuesday also formed an inside compression bar (all trading took place within the prior day's range). This suggests that buyers will show up above Monday's prices, and sellers will show up below Monday's prices.

One short-term pattern I feel I've finally potentially unlocked is that of the short-term dollar. The long-term dollar count I believe I nailed some time ago, but I had been wrestling with the short-term count for about a week, and I feel I've finally got it pinned. I believe the dollar recently completed wave (i) up of wave iii up (see
long-term projections at US Dollar Update: A Bottom Is Looking Imminent).

The question in my mind is whether the wave (ii) correction in the dollar is over yet or not. The pattern has fulfilled its minimum corrective requirement, and as such, could launch into a solid rally above the recent highs. If this is wave (iii) up now unfolding in the dollar, we would expect to see a strong rally develop over the next week. Obviously, any trade below the recent lows would indicate that wave (ii) is still unfolding.

Note that the dollar is sitting on potential channel support and could start rallying as early as today:

Click to enlarge

The SPX is more of a mixed bag. There are now at least five different ways to label the current structure, and all of them have different expected results. We're simply going to have to wait for the market to clarify before any level of accurate short-term projection will become possible. I continue to believe the next move is down; the question is really "how far?"

One possibility to be aware of is that the market could be forming a smaller scale redux of the last rally, shown below:

Click to enlarge

While I continue to favor a bearish resolution over the medium and long term, the short-term picture is quite hazy. However, due to the large number of top indications, I continue to favor lower prices over the short term, as well.

But as a result of the limited market movement of the prior five sessions, the bearish and bullish immediate potential resolutions are both still standing.

The bear count is shown below, and would have us in the process of a significant top:

Click to enlarge

The count above would probably need some fairly strong downside action sometime over the next few sessions to remain in contention.

The bullish short-term count is shown below. Please note that B and C paths are simply hypothetical at this point.

Click to enlarge

With a little luck, maybe the dollar will give early indication of the market's near term intentions. I'm seriously hoping that the market will do something today other than trade within the recent 25-point range, and will thus grant some clarity -- beyond "I think the next move is down" -- in the form of projections tomorrow. Trade safe.

This article was originally published on Pretzel Logic's Market Charts and Analysis.

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