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Dollar's Strength Opens Opportunity in ETFs


Look at iShares Lehman TIPS Bond Fund and PowerShare DB US Dollar Index Bullish.


Summary of Yesterday's Notable Technical Developments

Bonds sold off again Tuesday and the 10-year Treasury closed above the 3.58% short-term resistance level rather easily.

Stocks took their cue from the higher rates and a stronger dollar and sold off -- giving back the breakout above the 1113 level that they posted Monday.

also were a bit soft due to the greenback's continued strength; they should have been far worse given their strong recent inverse correlation with the dollar -- a change worth noting.

The US Dollar Index blew through the 76.58 resistance level, trading above 77 at times.

Market Internals

(Figures are rounded)

Critical Market Components

S&P 500: The first meaningful support is the ascending 75-day moving average (currently at 1071.36); the next meaningful resistance is 1139, which is a convergence of Fibonacci levels; volume is too light to read much into the price movements right now -- lots of false breakouts and breakdowns.

NASDAQ: The critical level on a weekly closing basis is 2211.95; support below that is the lower edge of a rising wedge that has developed at 2179; next resistance on a confirmed breakout is 2231.02 -- a 61.8% retracement of the 2008-09 bear market; NASDAQ and semis still trying to lead here, although there was some conspicuous late-day selling yesterday.

Dow Jones Industrials: Support at rising trend line at 10,285.97; resistance revised up to 10,507.59 on a weekly close; 9,712 is next target on the downside on any break of support; look for possible seasonal window dressing here as we close out 2009.

10-Year US Treasury Yield: Support from horizontal line at 3.554%; resistance is now the 3.78% to 3.88% range -- the wave iii of 5 targets.

Commodity ETF (DBC): Support at the 80-day moving average at 23.28; substantial resistance at 25; a stronger dollar has led to weaker commodities recently, but that relationship was absent in yesterday's trading -- a change worth noting.

US Dollar Index (DXY): New short-term support at previous resistance of 76.58; next short-term target is the October high of 77.47; the intermediate-term target is the 80 to 81 area; the DXY is clearly in a short-term uptrend so use every counter-trend move to buy PowerShare DB US Dollar Index Bullish (UUP) and/or to lighten up on "risk assets" like stocks and commodities.

Semiconductor Index (SOX): Gave back Monday's breakout; the key level going into the weekend once again will be the 339 level; if it succeeds in closing above that level going into the weekend, it would be very bullish for semis and for technology in general; support at the weekly uptrend line at around 320; a breakout above the 339 weekly resistance would lead to an upside target of 379 to 385.

Bank Index (BKX): Banks continue to trade horribly here; critical support exists at 41.62; staunch resistance at 44.82; the banks are working their way down to the bottom of the trading range even as the indices are still testing the highs -- this can't be good for the overall market.

Gold: No change here; short-term support is at the uptrend line which currently comes in at around 1100; short-term resistance is the November 14 high at 1143.40; target entry back into gold is the uptrend line at around 1100.

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No positions in stocks mentioned.

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