A Breaking of Two Moving Averages SPX and USD

Oct 1, 2009: 7:15 PM CST

It’s a “Tale of Two Moving Averages” – in that the daily S&P 500 broke beneath the rising 20 day EMA while the US Dollar Index broke above its falling 20 day EMA.  Let’s take a quick look at these structural developments.

S&P 500:

The big news today was that the S&P 500 Index cracked beneath the 1,040 level, which reflected both prior support and the rising 20 day EMA (1,044).  That’s quite a bearish development and it’s getting a lot of coverage.

It seems logical to expect a test of the rising 50 EMA at the 1,017 level, or even a pullback to the “round number” 1,000 level.

This is either the start of something big… or just one more failed sell signal (reference August 18th and September 1st for prior ‘breaks’ of the 20 day EMA).

Let’s take a look at another break of the 20 day EMA which isn’t getting as much attention.

US Dollar Index:

The US Dollar Index broke above $77 today, which also broke above the falling 20 day EMA on a ‘pullback.’

Remember that the US Dollar Index is generally inversely correlated with both the stock market and crude oil (and with some other commodities as well).  Thus, a rising dollar is bearish for stocks, crude oil, and (to a lesser extent) gold.

Once again, this could be the start of a short-term or intermediate term retracement/reversal in the Dollar Index (which would be confirmed with a break above $79) or just one more ‘failed’ break above the daily 20 EMA (the dollar has broken above this moving average more times than the S&P 500).

What the Dollar has not done yet  – which would be far more important – is to rise above the 50 day EMA at $78.  That would draw more attention and be a larger signal than today’s move.

The Jobs Report tomorrow will likely help give direction in both these markets.

For now, let’s watch them much closer to see how the next few trading days will clue us in to whether these trends will continue… or form a stellar reversal.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

3 Comments

3 Responses to “A Breaking of Two Moving Averages SPX and USD”

  1. Bob Says:

    Some truly key developments are changing the landscape…

    Could you offer some perspective in a follow up post on the two past failed reversals; from a technical perspective, what were the leading signals that pointed towards failure of the move instead of continuation. Maybe you can help us learn something from the past.

    Thanks!

  2. Dan de Man Says:

    If the candles hold like they are now. We may be able to take advantage of a short covering bounce on Monday. Contracting bbands may support this trade.

    Cheers,
    Dan

  3. Dan de Man Says:

    If the candles hold like they are now. We may be able to take advantage of a short covering bounce on Monday. Contracting bbands may support this trade.

    Cheers,
    Dan