Friday, February 19, 2010

Throw This Squirrel A Nut

Every now and then, even this squirrel will catch a nut. My "call" on the Dollar Index on January 19 has been prescient, and it appears that the Dollar can still move higher as key price levels (i.e., resistance) continue to fall. See figure 1, a weekly chart of the Dollar Index.

Figure 1. Dollar Index/ weekly

The bullish set up of a weekly close over three key pivot points (i.e., the pivot points with the black and yellow dots) is identified on the chart. The down draft seen in 2009 most likely represented a pullback within a longer term secular trend. In other words, the Dollar Index has those secular tailwinds behind it that should propel it higher, and this is what we have seen since its December, 2009 when the Dollar Index found a bottom.

The Dollar Index has easily moved above the next level of resistance at 80.31. This key level is now support, and a weekly close below this level is a sign of caution. The next level of resistance is at 82.88, and the next level after that is at 85.92, which coincides with the 2009 highs.

Lastly and as stated in the article on January 19, a higher Dollar implies capital preservation. For those interested, the S&P500 made its high for the bull run on January 19.

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