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CNBC Power Lunch Europe

LET'S TAKE A LOOK AT THE S&P 500 DAILY CHART

This is the week that will confirm a bear campaign since this is the normal time period for a counter trend rally in a bear trend. When this market appears to be waiting for an announcement every one know is coming, it is a pattern that can occur in a bear trend. Also, the index can or usually does exhaust into highs so a spike up this week does not eliminate a top this week. If the index can advance past this week this is not a bear trend.

But turning down now or next week will look like a completed counter trend rally in a bear trend. You can see how volume this month has been deteriorating since the capitulation low in March. The index has been rising due to a lack of sellers not because of buying interest. In other words, there has not been a lot of interest in stocks at this price level and a wave of selling will not find buyers. This is the week that should tell the story.

LET'S TAKE A LOOK AT THE US DOLLAR INDEX AGAIN

The past few weeks I've been indicating the dollar index was at some sort of low. If you are in this business of investing or trading your objective is very clear. You want to "enter a trend with limited risk and exit that trend when the trend becomes at risk of completing." There are only three different styles of trends. One of those styles of trends is a "blowoff" trend and they are easy to see developing because there will be three or four ascending or descending trendlines followed by exhaustions. You can see on this weekly chart the three descending trendlines indicating this is a blowoff trend down and the fourth trendline setting up the exhaustion. When this is leg is complete it will complete the intermediate term downtrend that started almost 2 ½ years ago.

This will be a temporary low and a counter trend rally in a long term bear campaign but could be a multi month rally even rally past 6 months. The key resistance to indicate the exhaustion down is complete is the previous exhaustion low. If price can trade above that level at 75 it will have further bullish implications as it will indicate the blowoff trend down is complete. If it starts to trend down without getting above that level there will be another exhaustion style of low just like the previous two exhaustions, coming at a level of 69.26, 67.40 or even 66.40 to 65.88 and will then end the move down.

Just the chance of the dollar finding a low has had a cooling effect upon commodity and metal prices and if this exhaustion move down is complete the effect could be quite dramatic. The next 10 days in the dollar will tell the story and confirm the low or confirm another exhaustion move down. But right now there is a low of some magnitude in place. Yes that means the EURO may have topped against the dollar. Next 10 days will also tell the story in the EURO.

 

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