Click on above image to enlarge
In the markets today the US Dollar (UUP) came onto the playing field to break out of a 6 month downtrend. The moderately correlated inverse relationship between the Dollar and the stock market has been disconnected when the Dollar has been downtrending for the last 6 months. Two weeks ago the UUP popped above its bull/bear blue line as can be seen in the lower chart I added this evening. Today was the big pivot day for the UUP because after yesterday's selldown it looked to fall back in its brown channel and also cross back down below into its blue line. During the early hours of this morning, Greece's problems took the headlines and caused a 7am gap up in the UUP totally reversing its four day downtrend.
If today's marked breakout in the dollar follows through, the pattern has been for the inverse relationship between the market and the UUP to return as long as the UUP is in an overall uptrend. Those who follow the market regularly understand the forces behind the scenes trying to take this market higher to potentially pull the economy higher but if we are seeing the return of the inverse relationship of the UUP and stock market, trading can become very volatile and erratic as it did last summer. It's too soon to say for sure if the UUP is beginning a sustained uptrend but having its pivot breakout to the upside wreaked havoc on the market intraday today. We had a huge intraday selloff in the morning, then a run back off, then selling off again before the bell. Summer trading is essentially here and if the UUP actually is returning as a strong market influence it will likely be a summer of great volatility.
Looking at the VIX chart we crossed back up to the bear side of the blue line and also closed barely back up in the red bear channel. In the top chart, the SPY closed very slightly below the 3 month horizontal orange shelf line, leaving us in a neutral to moderately bearish bias for Monday. I feel like there might be an effort Monday to seriously support the SPY at that 3 month horizontal orange line.
Alan
