Sept 8 Major Morning Activity in Dollar Index and Crude Oil

Sep 8, 2009: 10:19 AM CST

I wanted to do a quick mid-morning update on a large move in both the @DX (Dollar Index Futures) and @CL (Crude Oil Futures) as there has been some interesting movement in both.

First, let’s start with the Dollar Index Futures (continuous contract – which would be similar in UUP):

It would appear that the Dollar is forming some sort of “Rounded Reversal” on a lengthy, triple-swing positive momentum divergence (similar to Crude Oil as we turned the corner to 2009), but this morning’s price action throws a little cold water on that reversal structure.

Generally, we would expect prior support at $78 to hold, but price can nip a little lower in forming a Rounded Reversal to wash out any weak longs (weak buyers) but this could also be the sign of something larger that we need to be observing in advance.

As mentioned in this week’s Intermarket Technical Report (to subscribers), failure for the index to hold the $77 level as support would clue us in that the larger timeframe trend is overwhelming this potential support and reversal zone here.

The $77 level is critical for any “dollar bull” to hold, and could mark a ‘last line in the sand’ – failure here would likely set-up a play (trade) down to challenge the 2008 lows and argue for a continuous rising stock and crude oil markets.

Next, let’s take a look at Crude Oil Futures (continuous):

With the Dollar weakening (falling), Crude Oil (and stocks) are rising in kind.

We’re seeing a 4% move up in Crude Oil futures at 11:00am EST.

What’s interesting is that price formed a very similar pattern as the S&P 500 did when it ‘busted’ the oft-mentioned “Head and Shoulders” pattern in July.

Price formed a sell-signal by breaking the support of the 20 and 50 day EMAs… and then formed a “Tri-Star” (Three Dojis in a row) pattern which is associated with a potential reversal.

Crude also formed a Tri-Star and is rallying hard this morning in similar fashion as the S&P 500 did after the pattern completed – shocking the short-sellers and creating upside momentum in part due to shorts covering.

Let’s wait until the close and perhaps to see a few more days action to see if today’s moves in the Dollar and Crude Oil Indexes reflect a one-day ‘got-ya’ blip or the start of something larger.

To keep up with a multi-timeframe, classic technical approach with support/resistance levels and expected plays/targets in the 10-Year Note, S&P 500, Crude Oil, Gold, and the US Dollar Index, subscribe to our Weekly Intermarket Analysis premium service.

Corey Rosenbloom, CMT

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