Thursday, April 28, 2011

S&P 500 Targets & Charting - With $USD

I did a recent chart on the SPY and $USD. Simple technical analysis here on the SPY. Below we have a weekly chart for the bigger picture, and a Daily close-up for the close above resistance for new highs of 2011 (Big win for the bulls). 

My ideal scenario would be to see the SPY retrace to bounce off 134.71 to test former resistance and establish it as new support. A launch off 134.71 would be encouraging as it would establish a harder floor giving more assurance to the rally. Relative Strength Index is still sloping upwards and MACD fast EMA is close to crossing upwards on the weekly chart. The 10-week SMA has served as solid initial support over the last couple of years.

An interesting thing I noticed is that in the last 3 years, SPY has gone as high as 22% above its 50-week SMA. Currently the 50-SMA is at 120.03.  If it were to extend 22% above the 50-SMA, it would imply a target of 146.43 (120.03 x 1.22). This is by no means a definitive target, but rather just an observation.The weekly 10, 20, and 50-MA's are still sloping upwards confirming the current uptrend. I do believe we'll hit at least 144 on the SPY. However, my trading methodology is not to pick tops, but rather to ride the trend - and the current trend is obvious.

There are a few things that concern me at this point that warrant caution: The lack of volume on the push to new highs, the MACD so far above the 0-line, and we're right up against the 78.6% retracement level since the beginning of the bear market decline in 2007. 

The USD/Dollar Index is at dangerously oversold levels and is due for a bounce, soon. The current correlation between the greenback and equities is an inverse relationship. A continued drop in the dollar could contribute to the push-up. A strong dollar bounce could send commodities and precious metals reeling. Gold and Silver correction anyone? The recent run-up is so parabolic that a serious correction would not surprise me in the least. A dollar rise will not always translate to a decline in silver/gold, as sometimes there is a true flight to quality from riskier assets such as stocks or bonds. I could see the Dollar extend its move downward towards the ~71.50 area to test prior lows from July of 2008. If we don't bounce there, well... Hope you have Gold and Silver, physical and paper.

And the Charts in order of SPY Weekly, SPY Daily, and $USD Dollar Index Cash Futures...

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Disclaimer: All content within this site is solely the opinion of the author and does not constitute investment advice. Trade at your own risk.