Bear Flag Breakdown for US Dollar Index?

Apr 24, 2009: 8:15 PM CST

It appears that the US Dollar Index broke to the downside out of a Bear Flag formation, hinting that lower prices are yet to come (and perhaps higher prices for certain commodities).  Let’s take a look at the Daily Dollar Index.

The whole Dollar price structure appears to be forming a larger bearish pattern, with the initial down-thrust to the December lows being the start of a move that was interrupted by a “Dead Cat Bounce” sort of awkward movement up to new highs on a clear negative momentum divergence.

Price now could be breaking downwards out of a Bear Flag that began with the highs above the $89 level.  A price projection (measured move) using the conservative upper trendline at $87 would project price to test the $81 level below (the “pole” measured roughly $6).

Ironically, the rising 200 day SMA is at the $82 level which gives a “Magnet Trade” or open air target down to that confluence support level.

If we do get this push down to $82 or less in the Dollar Index, we would expect to see the upward move in Crude Oil continue and might expect a push up in Silver and Gold and some other commodities.

Let’s keep watching this move, and if you so feel inclined to trade it, one way to do so might be shorting UUP which is the PowerShares Bullish Dollar fund, or buying UDN, which is the Dollar Bearish PowerShares fund – though do your research before trading either of these.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Travel to the LA Trader’s Expo in June to hear Corey speak on “Idealized Trades for Intraday Traders”

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Comments

  • The Eisenhower Silver Dollar bears the design of Frank Gasparro who likewise rendered the coin's reverse side with the Apollo 11 insignia, an icon to mark the moon landing in 1969. That was also the year that President Eisenhower also died, so this silver dollar has some sort of an alpha-omega interpretation.
    The Eisenhower Silver Dollar did not see much circulation owing perhaps to its cumbersome size. However, it was minted again to mark the US bicentennial in 1976. This commemorative coin was designed by Dennis Williams who added the Liberty Bell to the reverse while maintaining the Apollo 11 tribute with the image of the moon. This one maintained the original size of 38.1 mm, however.

  • Anonymous

    /dx the dollar futures has not broken the bear flag

  • Neil,

    Precisely - and gold has formed a positive divergence and looks poised to head higher. It's bounced off its daily 50 as well. Quite bullish.

  • Tan,

    Will do! I'd posted earlier when copper came into resistance and we had an inflection move down. Now, that down move may have run its course. I'll post it today.

  • tgarfield

    I would like to see a SPY in the dollar index instead of dollars. The USD dolar jumped when the market fell. The effect to foreigners was not the same. The SPY goes up a lot the dollar goes down a lot. I wonder with the amount of foreingers in the US market these days - if the elliot wave interpretaion is different in the dollar index or the CDN dollar to be specific.

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