I find it interesting that the S&P500, when adjusted for the US Dollar, has shown such a remarkably consistent band of readings at +16% at peaks to -16% at troughs. The drop in the S&P500 together with the dollar over 63 days (1 quarter) appears to attract buyers and rallies of +16% make buyers hold back.
The combination of the USDollar rally together with the rise in the S&P500 has meant a much bigger gain for US Dollar investors to the tune of 35% over the past 3 years. In the past three decades, the spread does always come back together, which could be accomplished by the dollar falling relative to the S&P500. I'll publish additional charts to reveal this "long term" pattern. In 30 years of charts, only the 2009 decline was less severe for US Dollar investors. What does that mean? That US Dollar investors often buy late in the cycle and end of losing money on a drop in the Dollar (DXY) and a drop in the stock market.
I will formulate a specific trading "recommendation" at a time in the near future.
Tim 2:24PM EST 11/20/2014
Comments
Leo.Ash
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I continue to observe increased negative divergences between stock prices to rise and indicators that I follow. The sharp rise in recent weeks was parabolic and left several "gaps", days when the indices opened to a value higher than the previous day's closing leaving a space. The parabolic ascents do not end well and this will be no exception. There relevant gaps in the S & P500 in 1905 points, the Dow Jones in 16,401 points and the Nasdaq 100 in 3872. This tells me that the indices will fall substantially in the next relevant decrease for at least these values, then possibly exceed the minimum of 15 October.
The S & P 500 has strong resistance at 2,094 points and the Dow Jones in 18,300 points, the indices can not reach these levels.
The reversal may begin soon, problably in the beginning of January 2015.
ChrisMoody
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Nice Insight
jeremyb
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thanks for your reply.
I will ssay : no, just understand for what it's interesting to see that ? to see there are more buyers so ?
timwest
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I'll post more charts to make it more informational. Stay tuned.
RobTaylorForex
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Patiently staying tuned ;)
timwest
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Thanks Rob - The USDollar is the lynch-pin here. So when the USDollar has weakness, it will give the impression that there is a lack of new buying going on to keep the market up at sustained high levels. Traders will circle in on the market and try to break support levels and trend lines to trigger an avalanche of selling. IF the avalanche doesn't happen, then traders will try and try again each time the Dollar weakens. I think testing the sensitivity of the drop in the USDOLLAR off of a recent high would be the data that I would look for. For now, I'm just going to keep an eye on USDollar weakness (DXY). Since the USDollar is 57% EuroCurrency, I'll be watching the Euro the closest.
RobTaylorForex
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Thanks Tim. great insight, I appreciate you sharing. Just to make sure I understand though, you mean how quickly say the Euro would rebound from a sharp fall like we are seeing today? And the faster/stronger the rebound is, the greater the chance we see decreasing buying pressure in S&P?
jeremyb
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I did'nt understand, you think that in a mid term, s&p will crash a little bit because of the thing you fund?
timwest
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I don't understand your question. This is just educational reference and an interesting pattern. No forecasts just yet. We didn't get to +16% in this rally... only that it looks like foreigners are piling into our market because the dollar is rising sharply as the equity market is going up sharply = foreigners are buying. So, what seems to be the case, is that they are often at the tail end of the move and therefore can be used as a contrary barometer, but I don't have the trade entry parameters defined yet. Are you asking for specific trade entry/exit parameters?
The S & P 500 has strong resistance at 2,094 points and the Dow Jones in 18,300 points, the indices can not reach these levels.
The reversal may begin soon, problably in the beginning of January 2015.