Courtesy of Springheel Jack
I’m away on a long weekend and my internet access is limited, so I drew the charts for this weekend’s write-up shortly after the open on Friday, just before Bernanke’s speech at Jackson Hole. It was already clear what the key chart of the day was going to be however — the DX (US Dollar Futures) chart:
(Click on charts to enlarge)
There is an impressive bullish setup in multiple timeframes on the US Dollar. (See my April post on the Dollar here.) The principal threat to the bullish scenario is another big round of quantitative easing, as quantitative easing is essentially “money printing,” and money printing is currency devaluation, and dollar devaluation is by definition bearish for the US Dollar.
The 5 year chart above shows that the US Dollar trends well. When a trend reversal is confirmed by the break of the main rising support or declining resistance trendline (for the previous trend), the Dollar has followed through on that trendline break with a sustained move in the direction of the break. The sustained move has lasted at least several months.
So it was high technical drama with DX testing the key rising support trendline from the 2011 lows as Ben Bernanke began his speech at Jackson Hole. Had he announced another big round of quantitative easing, the DX would have broken support, the US Dollar uptrend would have been killed, and several more months of US Dollar weakness would have probably ensued.
A US Dollar uptrend can be reversed by the Fed, and the fundament perspective is reflected in the technicals. On Friday, Bernanke didn’t announced anything of substance, and DX bounced and closed above support, saving the current uptrend. A new high for 2012 will add confidence to the Dollar’s move higher.
The second chart is the Nasdaq equivalent of the SPX ‘Age of Irrational Exuberance’ chart which I discussed in last week’s newsletter Feeding the Beast: Aug. 26, p. 6. As for the SPX chart, there are strongly bullish and strongly bearish interpretations for the Nasdaq chart:
The bullish interpretation is that the Nasdaq 100 (NDX) broke over channel resistance in early 2012. It reversed at the 50% fibonacci retracement of the decline from the Tech bubble high to the 2002, retesting that broken resistance at the 2012 summer low. It is now powering up towards towards new highs.
The bearish interpretation of the chart is that NDX is forming a perfect double or M top, with the ideal high between that 50% fibonacci retracement at 2805 and the major resistance level at the summer 2000 low at 2897. If NDX breaks above 2900, this chart will look decisively bullish. If NDX reverses between 2800 and 2900 and then breaks the summer lows, the chart will be bearish.
That’s like saying if the NDX continues up, it will be bullish; and if it turns down, it will be bearish. Not rocket science, but the numbers give sign-posts to watch for.
Looking at copper, EEM, the Dow Theory divergence between the Dow and Transports indexes, and the currently intact uptrend in the Dollar, I’m still leaning towards a bearish outcome.