Technically Speaking

Equities, Energies at Odds With Dollar

The chart above shows the all-time peak in November soybeans of $17.89 a bushel, made Sep. 4, 2012, during a year of drought. Similar to the current situation, prices were trading above their 30-day average until, in this case, they formed a head and shoulders top and finally broke below the 30-day average. (DTN ProphetX chart)

U.S. Dollar Index:

The greenback remains locked inside a long-term downtrend, which extends all the way back to March of 2020. There have been several short-term corrections along the way, but there is no way to view this market in a constructive manner based on price action from any time frame. The U.S. Dollar Index came very close to colliding with its 50-day moving average on Jan. 18, narrowly missing the indicator before turning back lower. Momentum indicators have also rolled over after moving higher along with price during the early January rally. Aside from the lows around the $89 handle area in early January, the U.S. dollar has longer-term support at the 2018 lows between $88.00 to $89.00. With the massive fiscal stimulus being planned for 2021 along with the large-scale deficits being accumulated, it isn't difficult to envision the scenario in which the U.S. Dollar Index continues trading lower for the foreseeable future. Considering these issues, a bearish policy remains advised for the U.S. Dollar Index until trade above the $90.9510 level at the very least, but preferably a major corrective high like the $94.2850 level from Nov. 2 can be achieved.

March Crude Oil:

Crude prices have enjoyed a solid rally since the beginning of 2021, but price has slowed its ascent and even turned consolidative in recent sessions. This loss of momentum has been a bit concerning, especially as momentum indicators like stochastics diverge from price. As spot crude prices made new highs on Jan. 13, stochastics made a "lower high" on Jan. 12 than they did on Dec. 18. This is a caution flag, although price has still not slipped enough to confirm the divergence. Crude prices remain well above major long-term moving averages, although it is noteworthy the 50-day sits at $47.41 per barrel, near the consolidation area from the last half of December. We would look at this area as solid support on any larger setback attempt. First and foremost, we will be interested to see whether the spot contract can hold strength above the trendline support level drawn off the lows from Nov. 2 and Jan. 5. These issues considered, a neutral-to-supportive policy remains advised, although the loss of momentum in this market needs to be monitored closely. Selling pressure, which pushes price below Friday's low, could open downside losses.

March E-mini S&P:

It is difficult to find a chart with a more impressive uptrend than a major equity index chart like the S&P 500. New record highs were set last week at 3,859.75 with momentum indicators remaining strong. In fact, momentum indicators on a chart like the E-mini S&P are a great example of why those tools should never be used as an "overbought" or "oversold" indicator. On the most recent leg of the rally from Oct. 30, stochastics moved above the $80.00 level on Nov. 6. If a prospective trader would have sold their long position as soon as the indicator breached that level, they would have missed another 10% of the rally, especially since the beginning of 2021 where the indicator has made a living above the 80.00 level. At the very least, jumping in and out of the market each time momentum moved above or below 80.00 would have resulted in a host of transaction fees. With trade into record territory, there is no hard resistance candidates aside from derived technical levels provided by tools like Fibonacci progressions or Gann lines. Considering these issues, a full bullish policy remains advised with trade under 3,740.50 needed to move to a more neutral stance.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities and futures contracts involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at: Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman

Comments

To comment, please Log In or Join our Community .