Volume Surge and Elliott Waves Hint Reversal in UUP Dollar

Aug 14, 2009: 2:04 PM CST

Let’s take a quick look at the UUP (Bullish Dollar ETF) which could be on the verge of a low-risk, major turning point to the upside.  Let’s pay close attention to a recent volume surge and a likely Elliott Wave fractal count which seems to be complete.

First, let’s start with the simple analysis. We’ve had a large down-move throughout most of 2009 as price peaked in March 2009 as the US Stock Market bottomed – there is currently a strong inverse relationship between the US Dollar Index and the S&P 500.

Volume surged at two locations – the June lows of $23.50 and most recently, the August lows just above $23.00.  Volume surges at the end of lengthy down-moves can be a sign either of ‘capitulation’ where the longs sell their shares in frustration all together, or more likely, it could be new buyers who perceive value at these levels and are rushing in to ‘scoop up’ shares aggressively… or it could be a combination of both.

So, volume could be pointing to a bullish event ahead.

Second, there is a triple-swing positive momentum divergence (we call this the “Three Push Reversal” pattern) which – of course – has bullish implications (there was a very clear “three push” pattern on the S&P 500 going into the March lows).

As price made three new absolute price lows, the 3/10 Oscillator made higher lows with price, creating the divergence situation.

Finally, price appears to be completing a 5-wave Elliott Wave fractal pattern (complete with sub-waves labeled appropriately) into the 5-wave lows.  Please refer to our free “Elliott Wave” Education Page for more details on fractal wave counts and expectations.

As if this wasn’t enough information, there are two other bits of confirmation at the lows – two doji candle patterns have formed at the lows at the lower Bollinger Bands.

A break above the 20 and then 50 period EMA at $23.75 is all that remains to confirm a trend reversal to the upside, which would be bearish for stocks and commodities.

A clean break beneath $23.00 would invalidate all this bullish ‘technical evidence.’  It would be a bet worth taking if price actually does reverse off these levels.

I go into more detail of these intermarket relationships, as well as chart the Monthly, Weekly, and Daily structures of these markets, noting key turning points, opportunities, and levels to target or place stops in my weekly Intermarket Technical Report which is released each Sunday evening.  It’s currently only $47 for a monthly membership so please check out our premium section for additional information.

This week, and the week ahead could mark a major turning point across all key markets – don’t let it slip you by if markets start reversing trends from this point.

Corey Rosenbloom, CMT

9 Comments

9 Responses to “Volume Surge and Elliott Waves Hint Reversal in UUP Dollar”

  1. dgs8502 Says:

    Did you super-impose the Elliot counts onto the Stockcharts chart or do they have a subscriber level that runs Elliot counts on stocks & indexes?

    Thanks for all the postings you do, great job!!!!
    Donald

  2. Corey Rosenbloom, CMT Says:

    Thanks Donald!

    I wish they did – no, I copy charts using SnagIt and then use their image editing program to put in my annotations (much easier than StockCharts with more options).

    The Elliott counts are done by hand.

  3. Bob Says:

    It certainly appears much is hinging on what happens with the US Dollar. Will the equities markets continue their rise or break down; will gold break to up side and bust thru the $1,000 barrier or pull back to modest levels (it's just a metal); will oil prices rise to test $100 again or will it retreat to more reasonable levels??? Lot's to consider, all entwined with the US currency and all at key levels of support & resistance.

  4. MASTER33 Says:

    Here's a related chart on UUP vs SPX. It's on a sell-the-market signal.
    http://social.stocktock.com/photo/dollar-vs-spx

  5. tgarfield Says:

    The volume can also be from market making. Since UUP is a tracking etf, those sells could be a market maker buying forex and selling UUP. Traders not able to use forex are using UUP. Big traders aer using Forex. If Forex is a larger game than UUP, then UUP can be misleading. Forex is larger by the way. Currency is important to me, I'm not sure if the answer can come from UUP.

    Same thing happens with many ETF's. Maybe I'm wrong. I think the dollar could base around here in a range myself. M3 money supply is around equal to 2005. There could be a bump up in the dollar as trades are unwound from those who got in late. (Around here makes sense, so that probably won't happen).

    Currency moves have been violent for a few years, but that doesn't have to continue.

  6. jamesmarkii Says:

    yea.its time to process some bulls and make burgers, sausages and beef jerky..

  7. vinaydh Says:

    Volume serge has occurred quite a few times in the last few months but didn't help Dollar. This latest volume serge though impressive only lead to a small price swing and closes right around the opening price. If the price bar was the same as the last price bar on Friday then it would have been something worth noticing. Even then there were no guarantees because it happened in Jun and it didn't help dollar. It looks more like an exhaustion move to me.

  8. jamesmarkii Says:

    yea.its time to process some bulls and make burgers, sausages and beef jerky..

  9. vinaydh Says:

    Volume serge has occurred quite a few times in the last few months but didn't help Dollar. This latest volume serge though impressive only lead to a small price swing and closes right around the opening price. If the price bar was the same as the last price bar on Friday then it would have been something worth noticing. Even then there were no guarantees because it happened in Jun and it didn't help dollar. It looks more like an exhaustion move to me.