The Only Chart That Matters

How could I forget the only chart that matters?

Figure 1 is a weekly chart of the Dollar Index. This is the same chart I have been showing since June, 2009 - prior to the Dollar Index unraveling. Last week there was a weekly close (price bar with down red arrows) below the low of the immediate positive divergence bar at 75.20. Closes below positive divergence bars (price bars highlighted in pink with gray oval) tend to lead to selling as traders expecting a reversal close out their losing positions. The down trend continues, and as the data shows, there is a high likelihood of the downward move accelerating.

75.20 becomes resistance and a weekly close above 76.58 would end the down trend.

Figure 1. Dollar Index/ weekly

Now let's look at the Dollar Index from a completely different perspective. Figure 2 is a weekly chart of the PowerShares DB US Dollar Bear (symbol: UDN). This is the inverse of the Dollar Index. The indicator in the bottom panel searches negative divergence bars, and we have had a cluster of these over the past 13 weeks. As discussed recently, this can be an ominous topping pattern or a spring board to higher prices - i.e., a blow off market top where prices really accelerate higher. A weekly close greater than 28.70 would suggest higher prices for UDN, which means a much lower Dollar Index.

Figure 2. UDN/ weekly