Tuesday Fallout Brings Cross Markets to their 20 Day EMAs

Oct 19, 2010: 4:55 PM CST

Despite all the volatile price action in the cross-markets today, something very interesting happened.

Despite the overbought or oversold conditions of the inter-market structure, one fell-swoop brought all markets back to their 20 day Exponential Moving Averages.

Let’s take a quick chart fly-by to see what happened and what to watch from here.

First, the S&P 500:

A 1.5% down move isn’t devastating – not like a 3% move or more.  Price stayed overbought by most oscillator and showed negative momentum divergences, so little resolutions are quite common.

For now, price snapped-back to the rising 20 day EMA at the 1,160 level and rallied up off from just above this level today.  That will be the key to watch:  1,160.  It’s still a ‘bull’ above, and cautious under (1,150 specifically).

Gold:

The big news today is certainly Gold, which fell 2.6% – down over $35 – in one of the largest one-day declines of the year.

Still, despite the harshness of the pullback, price fell to its stably rising 20 day EMA, where the selling stopped – so far – and held as support.

The key is of course watching whether $1,330 holds.  If not, a lower move to $1,300 could be realized (which would be the 50d EMA).

Oil:

I remember yesterday when traders were discussing the powerful move up in oil – only to have a MORE powerful move down today.

While yesterday’s low formed on the rising 20 day EMA and the high formed to the upper resistance level at $84, today was just the opposite – in a bigger way.

Price actually slightly sliced under the 20 EMA – currently at the $80.70 level – and further downside pressure likely pulls the index to the confluence support at $79 if oil can’t catch a bid here.

The US Dollar Index:

Astute market observers know that the US Dollar Index generally moves OPPOSITE crude oil and often gold, along with the S&P 500.

So what’s good for the Dollar is bad for the other major markets listed above.

I wrote in this weekend’s Intermarket Report how I felt we could see a decent rally at least to the $78 level which reflected the 20 day EMA – that happened today.

I argued this based on the positive momentum divergence (not seen), “Bear Flag” measured move target down to the $76 level, and bullish candle formations – namely Thursday’s doji and Friday’s “Bearish Engulfing” Hammer Candle.

With that short-term target hit, what happens here is up to the Dollar – a break above the $78 level (20 day EMA) sets up a playable test to the $80 confluence level (50 day EMA and August low).

Of course, if the other markets re-assert their up-trends after retracing down into the 20 EMA, the Dollar would likely resume its downtrend by moving back down off the 20 EMA from the recent rally.

Keep a close eye on what happens across the markets this week.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

1 Comment

One Response to “Tuesday Fallout Brings Cross Markets to their 20 Day EMAs”

  1. David O. Says:

    Thanx Corey…I don't consider myself 'astute', however I do realize that the US dollar generally moves opposite to the S&P 500, oil, and often gold.

    Later.