BarroMetrics Views: The DX 2009-06-08
On Friday the DX provided the clear buy signal I was anticipating and alluded to in my interview on NDtv on June 4.
http://www.ndtv.com/news/videos/video_player.php?id=1117883
Figure 1 shows the 18-day swing (monthly trend). It shows a clear Negative Development (see Nature of Trends) buy signal when the market gave a bullish-conviction close above 80.28 (i.e. beyond the Primary Buy Zone). The minimum target for the move is the Primary Sell Zone 89.82 to 88.00; but we’ll probably see a move above 89.82 even if then come back below 87.98 - thus generating a sell signal.
Now regular readers of my blog know that I am long-term bearish (12-month swing i.e. yearly trend) on the US Dollar. I have been interpreting the correction off the 71.10 low to 89.82 high as a running correction with completion of the pattern being the 89.82 high.
But the 18-day swing buy signal has thrown a spanner in that scenario. Figure 2 shows we bounced off the 61.% retracement level. This suggests a possible 3-wave structure where wave-1 was 71.10 to 89.82 and a wave-3 that will be at least 0.618 of wave-1 (89.60) and will probably be equal to wave-1 (96.50)
If the current move moves only to 89.60, then the bear scenario is still possible (since the prior 12-month swing high at 92.50 will remain intact); but if we move above 92.50 en route to 96.50, the move above 85.05 would mean we have a Negative Development buy signal that suggests a target to the Primary Sell Zone 121.32 to 114.90 (see Figure 3). We’ll need to watch the Death Zone 96.20 to 104. 60 - the last likely resistance in Market Profile Theory in the market’s march to the Primary Sell Zone. If that holds and sends prices below 87.85, then we may have a larger bearish timeframe operating. But on this structure, I rate this a low probability scenario.
Now this has implications for the S&P seeing that at the moment there is an inverse correlation between the two. If the correlation holds, then a move by the DX to 121.32 to 114.90 will mean new lows for the S&P i.e. under 666.80 basis cash.
We live in interesting times. More tomorrow.
Figure 1 18-Day Swing
Figure 2 12-Month Swing
Figure 3 12-Month Swing 2
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