On the last day of the month and quarter two charts could contain the key to determining the direction of stocks and precious metals for the remainder of the year.
It was just yesterday when I commented that if the market was to pick up steam, the financial sector had to snap out of it—“That dog just don’t hunt.” The dog must have sniffed a big juicy bone because it bared its teeth and charged higher yesterday through the resistance at 15.24 on theFinancial Sector SPDR (NYSE:XLF) chart with a gap up. E
Even though the XLF has had reactive surges before, the chart shows that none of them was accompanied by a gap up (gaps down have been common) and none reversed from below the support line of its channel down pattern. So far, so good. The real test will come when the SPDR reaches the broad resistance at $15.40 to $15.80, and then there is that open gap that could close with a single day of selling and negate yesterday’s positive move. This is a key index to keep on the radar screen since it could tell us whether or not this week’s rally can be sustained.
The inverse relationship between the dollar (represented by the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) and precious metals and stocks is an accepted proposition. But currently the question is what pattern is being formed in this chart — bullish or bearish for the dollar? Some technicians think it’s a consolidation within a downtrend, commonly called a “wedge.” But the June high has already been broken, negating the wedge theory, and if the index is able to close above the bearish resistance line, now at $21.50, the dollar could be headed for a dramatic trend reversal up with the implication that stocks and commodities could move down.
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