Daily Chart Positions of the US Dollar and Crude Oil

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