Technically Speaking

The USDX: The Markets' Michael Myers

Source: DTN ProphetX

The U.S. dollar index (USDX) is the market's version of Michael Myers (from the "Halloween" movie franchise) in that no matter how many times it is shot, burned, blown up, or decapitated it keeps coming back.

Those of you familiar with my blog recall that I've analyzed the countless bearish technical signals of the USDX to death, only to watch it move back to within striking distance of its high of 100.390 from last March. Here's a quick recap:

The major (long-term) trend remains down on the monthly chart. After posting its March 2015 high the USDX closed at 98.357, the sell-off establishing a bearish crossover (faster moving line crossing below the slower moving line) above the overbought level of 80% by monthly stochastics. However, after testing support at 93.383, the 23.6% retracement level of the previous uptrend from 70.698 (February 2008), the USDX has rallied to test resistance at 98.557. This price marks the 76.4% retracement level of the initial sell-off from the March 2015 high through the August 2015 low of 92.621. Speaking of last August, the USDX posted a bearish outside month that looks to be offset by this month's bullish outside range.

The secondary (intermediate-term) trend would also be classified as down, though the extended sideways range is starting to look like some poor individual being stretched on the rack. Weekly stochastics established a bearish crossover above the overbought level of 80% the week of March 16. Since then the USDX has been consolidating between secondary support at 93.236, the 33% retracement level of the previous secondary uptrend from 78.906 (week of May 5, 2014) through the 100.390 high (week of March 16, 2015), and the above mentioned resistance at 98.557. Given that the USDX is near the high end of this range (this week's high is 97.818) and weekly stochastics haven't established a bullish crossover below the 20% level, the next move by the USDX should be down.

Which brings us to the daily chart, and what looks to be the early stages of another minor (short-term) downtrend. Note on the attached chart that the USDX is falling back from Wednesday's high of 97.818, itself a test of the high side of the Bollinger Band (volatility) study. A sidenote regarding volatility, note the expanding range of the Bollinger Bands (moving red and green lines). Now take a look at daily stochastics (momentum study, bottom chart) and you'll see the USDX could establish a bearish crossover above the overbought level of 80%, depending on Friday's close. If this occurs, and is then confirmed by a move below Wednesday's low of 96.466, the minor trend would be down, feeding into the secondary signals on its weekly chart and ultimately the major patterns on the monthly chart.

But that would be too clean, make too much sense. And if the long list of "Halloween" movies has taught us anything, it's that the fate of Michael Myers doesn't necessarily follow logic.

To track my thoughts on the markets throughout the day, follow me on Twitter:www.twitter.com\Darin Newsom

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