Lethal Topping Pattern for the Dollar?

Jack Steiman, On Stimulus Not Working (SwingTradeOnline.com)

The market had a nice bid underneath it Monday morning pre-market. S&P 500 futures were up nearly 7 points with the Nasdaq up double digits. The S&P 500 had a double top of horizontal resistance at 1434/1435. It looked as if the S&P 500 was going up to test as it waited for the ISM Manufacturing Report to come out. Thirty minutes into the trading day we got the number. Anything above 50.0 shows economic expansion, while anything below 50.0 shows contraction. The market was expecting a number a bit over 50.0. It was nothing to get excited about or celebrate, but a number over 50.0 nonetheless. The market wanted to see economic growth, no matter how slight it was. 49.5 was the number that came in. Not good.

Remember, this is the number we're dealing with after being stimulated by Mr. Bernanke, with three QE programs. Can you say it's not working?! I can say, for sure, it's not working. It never had worked. It never will work. The market fell hard right as it was near the breakout level. Down it went slowly-but-surely all day. Strong gains early in the day became medium-sized losses by the day's end. It was a strong day for the bears as they defended S&P 500 1435. Now the bulls will try and defend 1402.

You would have thought that Japan would have been our teacher. Their economy went into free-fall after doing the same type of things we did here in the United States. Bubbled themselves into oblivion. All bubbles burst, and when theirs did, their stock market fell hard from 37,000. After 11 attempts to stimulate, such as we have with three QE programs, it worked to rally their market briefly, only to see if fail in a colossal way. You can't stimulate with free cash if there's no one to take it.

With Fed Bernanke saying he's about to do QE4, you have to wonder what runs through his thick skull. It doesn't work. He has created inflation where we don't need it. He has created debt we don't need. He just won't allow for the markets to work things out over time.

The fiscal cliff is boring already, but it looms out there like a bad dream you can't force yourself to wake up from. As long as it's out there, it's likely we'll meander back and forth. With interest rates so low, it seems the market has some protection. You never know, though, for if the problem isn't solved in time, and taxes hit this economy in a big way, we could fall very hard down the road. Let's hope the egos who lead our country get a clue in time to save the market and what may be left of this economy. If we lose the market, the economy suffers along.

The S&P 500 has massive support at the 20- and 50-day exponential moving averages at 1408 and 1402, respectively. If we break below once again, it may not come back so fast next time. You can only lose these strong support levels and recover but a few times. We need news that can take us over 1435 or the previous double horizontal resistance top. The close Monday was poor based on the ISM Manufacturing Report. The bulls will try to hold the market up until it can get some potential good news Friday from the Jobs Report. If that's a bust we could be in some real trouble.

Avi Gilburt, On Did We Top Out On Cue Monday? (ElliottWaveTrader.net)

In our weekend analysis to subscribers, I said that "the market will likely top sometime within the next week between the 1421-1432ES region, with the ideal target being the 1421-1425ES region." Monday morning, the market hit 1424ES, and turned down the rest of the day.

The question now is if we see downside follow through on the primary count into the 1370-1380 region.

Our alternative count, of this being a wave ii of wave 3, which is exceptionally bullish, would require us to see nice size gaps up over the next day or two, which should easily exceed the 1424 top we made Monday and move beyond the 1432ES resistance later this week.

So, now, we await the markets next clue as to the larger pattern playing out, but our primary count remains that we are in a larger wave 2 targeting the 1370-1380ES region, unless we see some significant gaps up over the next day or two.

Weekly Wizards

Mike Paulenoff, On Lethal Topping Pattern for the Dollar? (MPTrader.com)

The chart of the U.S. Dollar Index (DXY) is getting increasingly ominous, which should benefit gold prices.

The DXY is shaping up to be a fascinating technical study of "dueling timeframes." From a big-picture view, all of the action from late 2010 (demarcated by the light green lines) has taken the form of a huge "cup & handle" formation. As long as critical "handle support" in and around 79.00 to 78.60 contains any forthcoming DXY weakness, the larger, potentially very bullish pattern will remain intact.

Within the larger pattern, however, is a year-long potential top pattern (demarcated with black lines) that has as its critical support plateau (neckline) the same 79.00-78.60 price zone as the cup & handle support area. If this support is violated, it should unleash a powerful decline in the USD that projects to a test of the May-Aug 2011 lows (73.50-72.70).

Right now, the "smaller" but very lethal topping pattern has the upper hand and my immediate attention -- largely because the 200 EMA is starting to roll over into a negative slope for the first time in over two years. Only a DXY rally that manages to hurdle and sustain above 81.45 will neutralize the increasing negativity of the dollar. 

Weekly Wizards

Harry Boxer, On 4 Charts to Watch (TheTechTrader.com)

Despite the ugly slide on Monday after the big gap up, and the indices ending the session at the session lows, a lot of stocks we follow did well. We're going to take a look at some of those.

Computer Sciences Corporation (CSC) has a very interesting chart. It was in a down trend for quite a while, going from the mid 50's down to the low 20's. It bounced in an orderly retrace, jumped up again with a thrust, and a falling wedge. A breakaway gap to the upside broke it out above the first level of resistance, and then a 7- or 8-day pullback set it up for the pop on Monday, up 1.21 to 39.27, or 3.18%, on 1.8 million shares. It reached our target at 40, and the next target is in the mid 40's.

Deckers Outdoor Corp. (DECK) was in a very long down trend, going from over 100 down to under 30. Lateral price resistance was taken out on Monday, with a big breakaway gap on a volume of 6 1/2 million shares. It jumped 4.05 to 42.34, or 10 1/2%. The short-term up-channel has been reached and there may be a pullback.
However, if momentum accelerates on this one, it could move quickly to the mid-to-high 40's, maybe even as high as 49-50.

The GEO Group, Inc. (GEO) had a distinct breakout over multi-week consolidation on Monday in the confines of a rising channel. It popped 1.57 to 29.77, or 5.6%, on 2 million shares. Look for a target of 32-33 on GEO.

Qihoo 360 Technology (QIHU) had a significant breakout on Monday. It broke through 2-2 1/2 year tops, and on Monday, it spiked up 2.45 to 27.44, or 10%, on 11 million shares. It looks like it may run up to test the 29 zone short-term. If it gets through that, look for something up around 34. It has a nice base pattern, and technicals are improving. So keep an eye on this one.

Other stocks on Harry's Charts of the Day are Cleantech Solutions International, Inc. (CLNT), Celsion Corp. (CLSN), Neuralstem, Inc. (CUR), Caesars Entertainment Corporation (CZR), First Solar, Inc. (FSLR), Green Mountain Coffee Roasters Inc. (GMCR), Nam Tai Electronics, Inc. (NTE), Perion Network Ltd (PERI), and SouFun Holdings Ltd. (SFUN).

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