Good Odds For A Melt Down In The U.S. Dollar Index
John Townsend: A friend of mine who lives somewhere on the other side of the world and definitely on the other side of the equator was conversing with me yesterday about gaming the ultimate demise of the S&P 500. One of the clues we determined would be extremely helpful for timing purposes was the behavior of the True Strength Index (25,13) on a weekly chart.
We observed the TSI (25,13) weekly at the crucial point in both 2000 and 2007 when the S&P 500 was just turning from a cyclical bull to a cyclical bear and saw the same clues that were in place. And we noted that for now, it is time to be patient as the setup is not ready.
But this got me to wondering what to make of the US Dollar Index (/DX) so this morning I took a look. And I made a chart to document my thinking which follows.
|Click on the chart to ENLARGE|
What I see is a price chart with a failed and left translated daily cycle. I also see an intermediate cycle that has topped and failed to make a higher high (April 2013 vs. July 2012).
I also observe that the previous US Dollar crash beginning in August 2012 was announced by the daily TSI (25,13) by a multi-month trend line break SELL signal that was right at the ZERO crossover of the indicator.
And, the current setup has much in common with the preceding melt down. If the US Dollar is going to melt down sometime in the upcoming months I’ve got to think the setup we have now is a clear warning.
Related: PowerShares DB US Dollar Index Bullish ETF (NYSEARCA:UUP), PowerShares DB US Dollar Index Bearish ETF (NYSEARCA:UDN).