A Little Bit Bullish

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The S & P 500 Index found support on the upper channel of the bull flag this morning. Then a triangle was formed. Although a triangle can be broken from either side, this afternoon the S & P 500 did not touch the lower edge of the triangle before bouncing back --- this favors the bull, at least for now.

The Hype of Fed Meeting Days

If we exclude the two days of the Fed meeting from the S & P 500 Index chart, we see a clean down trend channel. Although it is still sliding down, it is much better than the waterfall we saw yesterday afternoon and this morning. And it also gives hope to bulls --- a potential bull flag is in forming, if the price moves above 1055. Good luck, bulls.

Follow Up: The U.S. Dollar

Yes, the U.S. Dollar Index broke up the resistance line, but hey, it comes back down again.

It is still possible for us to witness a downward climax run of the dollar, and a conjugated upward climax run of the S & P 500 Index. Technicals supporting this call are:

1. The sharp bounce offs (blue arrows) mark a strong resistances (horizontal blue line).
2. The dollar had a good rest in the consolidation area (pink box) and could run for a longer distance.
3. A steep trend (blue lines) is formed. The dollar stays on the lower channel longer and touches the upper channel briefly, suggesting the trend is strong.
4. The dollar broke down the support (red line) today (marked by the red arrow).

Yes, the last piece is weak as it only broke the support by 1 cent. So what we want to see tomorrow is a decisive move below the support and, more desirably, stay on the lower channel of the trend in the near future.

At the end, it's noteworthy that tomorrow the Fed will conclude its two-day meeting. All the financial markets are waiting for it to make decisions.

Potential (Downward) Climax Run of U.S. Dollar

Today the U.S. Dollar Index touched the lower channel (blue line) of its down trend and sharply bounced off (green arrow). Both suggests little downside for the dollar. Many may guess that the dollar may start to rise from here. However, I do see a bear flag (green lines) that points to a target far below the lower channel. To reach the target, the dollar needs to experience a downward climax run, which translates to a upward climax run of the S & P 500 Index following recent negative correlation between them. More supporting technical signs are:

1. the sharp bounce offs (blue arrows) on the upper border of the bear flag,
2. the downside break-out of the bear flag yesterday,
3. the retest of the resistance line (read line) after the break-out, and
4. the sharp bounce off (red arrow) on the resistance line.

All that been said, it may still happen that the dollar moves above the resistance line and invalidate all the technicals cited above.

Vaccum, A Bigger One

There is a huge vaccum area on the S & P 500 weekly chart. However, it is every trader's own decision whether the market will be sucked up at this moment.

Driven By the Falling U.S. Dollar

If I didn’t get it wrong, the current theme of the stock market is weak U.S. dollar and strong crude oil and commodity. The latter translates to potential higher profit of companies in the Energy and the Basic Material sectors, and thus higher stock prices. Coincidently, the recent market rally was led by these two sectors, though we see mild consolidations of the two sectors and catch-up of other sectors in the past two days. Therefore it is helpful to know how far the U.S. dollar will fall, as any re-bounce of dollar will jeopardize the bulls in the stock market.

Up until yesterday, the technical of U.S. dollar did not look promising to stock bulls. It was forming a falling wedge, a classic reversal pattern according to StockCharts.com (remember that a rising dollar may translate to a falling stock market). Although it breached the lower border (the light blue line) yesterday, it still closed inside the wedge, which makes it a little bit tricky to call for a break down --- financial market are full of overshoots. As of today it closed below the light blue line, a clear break down was formed and the falling wedge was invalidated.

It now appears that the dollar is forming a down trend channel, and there is still some room for the dollar to drop before touching the lower trend channel (the red line), meaning that the stock market may have more room to rise before heading lower. That said, it is prudent to keep in mind that the momentum of falling dollar is trimming down and risk increased for an unexpected snap back. It would be a good idea to keep an eye on the performance of the dollar tonight.

Less Leeway

S & P 500 Index was detained within a small area bounded by the blue resistance line (the blue horizontal line) and green support line. It will move higher if it can penetrate the resistance area above. As there seems no further resistances above this area, the target could be 1050 as predicted here. The sharp bounce-offs (blue arrows) on the support line and the flat kisses (red arrows) on the resistance line do suggest higher probability for an upward break out.