US Dollar Holds the Cradle Sell Signal

Apr 6, 2009: 10:53 AM CST

Last week, I mentioned that the US Dollar Index was “Pulling Back into the Cradle” to form a Cradle Sell Signal and price did inflect down off that level.  Let’s take an update and see how that structure formed and what might be in store now.

US Dollar Index Daily:

The “Cradle Trade” forms when the 20 period EMA crosses under (or above) the 50 period EMA (which is also called a “Golden” or “Death” Cross) and then Price pulls back into this specific crossover point.  It’s important because it gives you permission to use a tight stop and play for a large target, particularly if you expect a trend reversal to play out thanks to the crossover.

Price came up into the EMA crossover zone and formed doji candles (which are associated as short-term reversal signals) which added to the bearish picture.  It could be also that a Bear Flag is setting up in price which would set a target for roughly the $61 level which would correspond with the rising 200 day SMA which should act as support if challenged.

This is the structure, but currently the Dollar Index is rising (UUP, the Dollar ETF is up just under 1%) and most commodities are falling sharply this morning (as of this writing, GLD the Gold ETF is down 2%, USO the Oil ETF is down 4% while.  Let’s continue watching these to see what plays out off these levels.

Corey Rosenbloom
Afraid to Trade.com

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6 Comments

6 Responses to “US Dollar Holds the Cradle Sell Signal”

  1. TenYear Says:

    The dollar had the same formation in early January before extending the upward channel and eventually making new highs.

  2. Corey Rosenbloom Says:

    TenYear,

    True – so there’s absolutely no guarantee this pattern will resolve as expected to the downside. But the tight stop which will be taken if price reverses higher is a small price to pay if indeed the pattern does hold.

  3. Anonymous Says:

    well look at gold and silver about to have cradle and it appears they got a head and shoulder

  4. Jon Says:

    Did you mean 81 not 61 for the potential target if cradle holds?

  5. Anonymous Says:

    Corey, I’m wandering how reliable your “analytical” methods of trading are and how often do you arrive at “analysis paralysis” state? Can you please provide some performance statistics on trading results using your method?

    See, I’m using http://www.ReverseSignals.com, which take off the burden of conducting analysis on row data like you do and just provides you with quite reliable trading signals. The “analysis” work is already done for you. It may not be 100% accurate, but when trading on a portfolio this system outperforms stock market significantly. Check out the results when trading on Buffet stock picks: http://www.reversesignals.com/USstocks.jsf?Warren%20Buffett%20Portfolio

    KS

  6. Zuma Says:

    Hey Corey. This is the best trading blog I’ve run into, please keep up the good work!

    That being said, I was reviewing your best of 2008 section last night, specifically enjoyed the post on how to trade a bull flag. Now I just may have bull flags on the brain, but by any chance was that blue line drawn over the recent rally beginning in 2009 meant to be a pole? I could be reading far too much into what is just a trend line, but Corey I’m getting the impression that you might secretly be a closeted dollar bull.

    If so, man your a patriot! Thank you for your service.

    Zuma