Daily Chart Positions of the US Dollar and Crude Oil

Dec 12, 2008: 10:18 AM CST

From the looks of it, the US Dollar Index is breaking down while Crude Oil and other commodities appear to be building bases.  Let’s take a quick comparison of the US Dollar Index and Crude Oil prices to see these developments in price structure.

US Dollar Index:

The Dollar formed a wedge pattern in mid-November into new highs at $88, but it did so on a negative momentum divergence, and now we’ve completed a mini-bear flag pattern which has taken us to lows beneath $84 which broke both the rising 20 and 50 day EMA – a bearish omen.

Also, the momentum oscillator is forming a sort of head and shoulders pattern which also doesn’t bode well for dollar bulls, but I would consider a H&S pattern on the indicator as less important than the actual price development, but it’s still worth noting.

The current price structure flashes a relatively strong sell signal, in terms of a breakdown in momentum and price breakdown through key EMA support.

I would also suggest that we could be experiencing a 4th wave pullback in a larger 5-wave Elliott impulse, so now is probably not the time to short everything related to the dollar (by the way, if you do want to play a short in the Dollar Index without using futures or FOREX, the ETF inverse fund UDN might be a good option).

What is bad for the dollar is good for commodities – let’s take a look at Crude Oil.

Crude Oil ($WTIC):

The broader $CRB Commodity Index has a similar price structure, which has it challenging overhead resistance via the falling 20 day EMA on a positive momentum divergence.

Any buy-in to crude oil would be strictly a counter-trend reversal play, but that doesn’t mean you can’t try to profit from scalping counter-trend swings.  I’ve mentioned in previous posts (Crude Oil Finds Long Term Support and Buy Signal at $40 and also Bullish Volume Surge in USO – US Oil Fund) because I felt strongly about the structure developing short-term which is playing out nicely, though we’re encountering resistance at the $50.00 per barrel level thanks to the falling 20 day EMA.

Though there are targets on Crude Oil that range from $30 to $80 in the near future, I try to take markets and trade one day at a time and try to look for the most probable, immediate price swing instead of getting caught up in “Where will crude oil be a year from now?”.  Try to make your best guess of the next logical price swing and manage risk accordingly – it will reduce stress.

Continue to study these developments and how it might affect US Equity Markets and beyond.

Corey Rosenbloom
Afraid to Trade.com

3 Comments

3 Responses to “Daily Chart Positions of the US Dollar and Crude Oil”

  1. Vasu Says:

    HI Corey :

    Could you please explain what a ” fail;ed 4 th wave ” would mean ? and what would be the implications if 4th wave fails ?
    regards

  2. Corey Rosenbloom Says:

    Vasu,

    Which 4th wave failure do you mean?

    It’s a debate exactly which 4th wave we’re in on the US Equity Indexes (SPX, etc). I’m not sure how it could fail – just confirm one view or the other.

  3. snoopyjc Says:

    Another falling dollar play is $FXY (Japanese Yen), and of course $GLD (Gold).