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Dollar Index: A Series of Higher Highs and Higher Lows

There is no question that the Dollar Index is in an uptrend, and as stated in this article, this has not been good for equities over the past 10 years. So equity bulls be careful.

When looking at my simple Dollar trading model, the average length of a trade will last 7 months, and the current trade is now in its second month. Equities tanked in September when the Dollar exploded higher, and with the subsequent pullback to and retest of the 200 day moving average in the Dollar, equities caught a big bid. This month the Dollar is moving higher while equities tread water.

As is well known, gauges of market sentiment generally track prices. Figure 1 is a weekly chart of the Dollar Index, and the orange line over the price bars represents the MarketVane Bullish Consensus for the Dollar Index. We can see how this gauge of investor sentiment nicely tracks price movements. As prices increase, so does bullish sentiment and as prices decrease, the bears show grave concern. This is nothing new if you have been following what I have been saying about sentiment.

Figure 1. Dollar Index/ weekly

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In essence, sentiment often tracks price, and I would contend that it may actually lead price by 1 to 2 weeks. Remember, investors make a market, and this sentiment data is nothing more than the opinion of those investors. Now look at figure 2, a weekly chart of the Dollar Index with the same MarketVane Bullish Percent for the Dollar Index in the lower panel. Notice how the MarketVane data is making higher highs and higher lows. This is a definition of an up trend. This same pattern was seen in the prior two Dollar up trends.

Figure 2. Dollar Index/ weekly

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