Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Tuesday, November 13, 2012

UUP Dollar Index

Stock Market Technical Analysis Blog

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This evening I would like to focus on the UUP Dollar Index.  The UUP is truly the 800lb gorilla in the room.  It tosses the SPY, AAPL, VIX, Nasdaq, and the bonds around like they were rag dolls at will.  The UUP is a tightly scaled index though, it is shown in chart four above.  A decent move in the UUP is .01 and a strong move is .02 and a huge move which we rarely see is .03.  Looking at the UUP we see that it has essentially been at its upper line of its two month uphill black line channel for the past week.  Looking at chart six, the bonds have been at their upper black channel line also. Having both of these perceived as maxed out to the topside has allowed the SPY, Nasdaq, and AAPL to trade somewhat sideways just slightly downward for the past week stabilizing at major support I focused on in Friday night's blog.

The oddball in the group is the VIX in chart five.  Under all logic it should have stayed sideways at its upper black channel line for the past week as it trades in unison with the UUP and bonds.  Yet the VIX has been falling the past four days, raising eyebrows among traders and investors.  The general consensus has been that the stock indexes will hold at these major support levels (I focused on in my Friday blog) or rather it HAS to hold at these support levels.  With the market holding at these levels so far the VIX is reflecting an easing in fear in the market even though the UUP and TLT are still creeping upward but again they are at their upper black channel lines.

This morning the bulls came so close to turning this market around.  At the open the UUP gapped up to 22.22 but started falling quickly allowing stocks to start a rally.  Over the next two hours the UUP started falling unusually fast, falling from 22.22 to 22.18. a rarely seen .04 move downward.  The bulls seized the moment and stocks started lighting up knowing that if the UUP drops just .01 more it will break down out of its tight red line 1 week channel (marked with a red arrow in chart 4 and the close up chart #7) to be a marker for the UUPs trip back down in its black line channel and a likely stock market santa rally kick off.  Also, at that very moment the VIX was sitting precisely at the intersection of its black. blue and red channels.  If the UUP were to drop just .01 more the VIX would break down out of all 3 channels at the same moment and automated buy programs would have lit up like plugging in an Xmas tree.

Unfortunately the UUP's next trade was .01 higher and stocks immediately took pause. Looking at the focused view of UUP in chart 7, we see that an hour later the UUP ticked back up another .01 causing stocks to start drifting lower.  In the last hour the UUP ticked from 22.20 to 22.21 causing stocks to roll over hard.

We came so close for the bulls but that last penny on the UUP just wouldn't happen.  I could tell by how heavy the Q chart servers became in those moments that a lot of bulls were preparing to go in big, as it was their best shot for over a week.  Now we are back into a bearish situation for tomorrow's open because into the close the UUP popped back above its upper black channel as shown in chart 4.

Without an overnight intervention in the SPY we are now set up for a potentially nasty open for stocks.


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