Safehaven | Near-term Top in the Euro/Dollar, Bottom in SP 500?

May 08, 2008

Near-term Top in the Euro/Dollar, Bottom in SP 500?
by Mike Paulenoff

Two very significant technical breakouts could be approaching at the moment that will confirm a near-term top in the Euro/Dollar and an intermediate-term bottom in the cash S&P 500.

As we speak (Wednesday, May 7) the Euro/$ is pressing towards a test of key support at 1.5360/40, while the cash SPX appears to be poised to thrust above its 7-month resistance line in the vicinity of 1421. Should these breaks occur, the Euro points to 1.5000 next, while the SPX points to 1460.

A respite in surging oil prices would certainly help the S&P, but once again the US Oil Fund (USO) has surged towards a confrontation with its upper channel resistance line in the vicinity of 99.50. Classic technical behavior would call for the price structure to thrust 1-2% above the channel line (101.00 to 102.50) prior to pivoting to the downside in a very powerful negative reversal.

Certainly, the technical conditions are ripe for such a trend changing signal. However, so far we have no evidence of price deterioration. Only a decline in the USO beneath 98.70 will begin to compromise the juggernaut known as rising oil prices. A break beneath 98.00 in the US will add a measure of confirmation to my near-term technical sell signals.

I am, however, anticipating the establishment of a meaningful top in the U.S. Natural Gas Fund ETF (AMEX: UNG) in the vicinity of 53.00-55.00 in the upcoming days/weeks. Both my pattern and momentum work indicate that such a top is in development at this time, but that does not preclude the UNG from climbing to marginal new highs above 55.06 during the process.

Mike Paulenoff
www.mptrader.com

Mike Paulenoff is author of the MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.