Dollar Chart Request

I just explained a theory regarding the market and the dollar to a member who emailed me. As you know, I've expected a shakeout move to the upside, around SPY $135+. The market doesn't look good at all when we view the macro trend as I showed you last night, but tops take awhile to set up and one of the best indications of a market that is really ready to break down is when a false breakout occurs. We have seen this time and time again whether it be an intraday move, a swing move or a major top. As unlikely as that may seem given the market's nasty tone this week, I think the possibility is still there, especially given the charts I just showed you of the market's leveraged ETFs.

Generally speaking, for the market to have a bullish tone, the environment in the dollar needs to be weak as there's an inverse relationship between the two. I have speculated several times this week that the dollar is under accumulation, that typically occurs with falling prices or within a trading range or both. So if I continue down this path, which is some what speculative, accumulatio in the dollar should provide an accomdative environment for the market to move higher. The point of the market moving higher, especially if it were to make breakout highs, is to set up a bulltrap/false breakout. With a large accumulated position in the dollar, once it starts moving up into stage 2 "mark up", the environment for stocks becomes bearish. If these two events coincide with each other, there is th possibility that my original thesis will occur. The longer the dollar accumulates, the bigger the move up in the dollar and the more bearish the environment for stocks (in my speculation, the start of the move up in the dollar would coincide with the breakdown in the market).

Thus far the action in the dollar i supportive of that theory.

Here's UUP which is the proxy I use for the Dollar Index being I can't get intraday information on the actual dollar index, but UUP seems to work fine.

 This is an hourly chart of UUP, I know it looks confusing, but stay with me. During late April/early May, there was an accumulation period in UUP or the dollar, it lasted 5 days. Currently at the white arrow there is another similar positive divergence/accumulation which thus far has lasted 4 days. In early May, after accumulation was completed (and please note that it started into falling prices and then settled into a range) the "mark-up period began in which the dollar moved higher. In red, you can see where distribution began. It's important to remember that the position accumulated over 5 days is pretty big, it can't be sold all at once without sending the dollar much lower as supply would overwhelm demand. However, also take note that distribution did not begin until AFTER UUP had moved up beyond the accumulation zone, so in effect, distribution didn't begin until the position was already at a profit.  5-days of accumulation produced 13 days of rally in the dollar.  There were 5 days of rally before distribution even began. It appears that the positive divergence in UUP is still in the early stages, accumulating into falling prices. That suggests that this accumulation period may be much larger the the April/May period, producing a larger move in the dollar and putting more pressure on stocks.

This is a 30 min chart of UUP confirming about 4 days of accumulation thus far. The Greek situation, being as fluid as it is, could further influence the outcome in the dollar as the dollar will likely fall upon a resolution of the Greek debt deal. I don't think that is something the market can accurately discount so we may have a surprise in the mix.

Here's the last chart showing the inverse relationship that is common between the dollar and equities.

The S&P-500 is in red (click on the chart to enlarge), the Dollar via UUP i in green. Note that the S&P hit its highs at the bottom of the dollar accumulation period in early May. Once the dollar started moving up, the S&P started trending down.

It seems there's still a possibility that the original scenario I had envisioned can still play out.