Wednesday, February 1, 2012

U.S. dollar and VIX testing support levels (which may be temporary): chart views

Both the U.S. dollar ($USD or the ETF, UUP) and the volatility index ($VIX or the etf, VXX) moved lower today. Let's take a look, however, especially since the dollar pushed upward this afternoon after poking that low. On the $USD chart below, I've marked several batches of Fibonacci levels, and some preliminary channel lines. While the UUP tested a 50% retrace to its most recent swing low, the $USD dollar index only tested the 38.2% retrace to its comparable swing low. If it were to go to its 50% retracement, that would put it at about 77.60.

Here's the chart, which I'll discuss more, below:

There's a band between 77.60 and, lower down, 76.50, and depending on how fast $USD might descend, it could hit anywhere in the band and still get support from the lower uptrending line I marked as a parallel channel line. Furthermore, based on Fibonacci setups, there's a potential "triple crown zone" Fibonacci cluster if $USD were to fall into that band, which could support another strong rebound and move to higher highs by the dollar index.

If that happened, then of course it would have to go lower than it went today. That could happen if the stock market is only going to go a pullback before testing to higher levels, along with the euro. I do have a theory that the euro could test as high as $135, or alternatively test down to 125 then rebound to 135 (and then drop to 115) - we'll see! Main thing here is, we need to see whether or not the dollar index can sustain a move higher than today's low and Fibonacci test (corresponding to about 21.96 in UUP). If it falls under these levels, then it may well test much lower before getting support from that Fibonacci cluster and uptrending channnel.

Also notice that there had been some real negative divergence in $USD before it peaked and rolled over. That's another reason it may need further consolidation and eventually a lower test, before turning upward again.

There is another interesting point about the $USD chart. Notice that the low today backtested to a descending trendline that it previously had broken above. This is one reason why the dollar index may not necessarily go lower; or if it does, it could actually do so by sliding down that shallow descending line. However, I'm not so convinced it would do the latter, i.e., by remaining above but sliding down that line. Normally once there is a backtest, either price uses it to rebound, or it would just break back under that line - that's why I think if $USD rolled over downward again, it would be more likely to go to 77.60 and test that Fibonacci cluster zone and uptrending green trendline.

As for the volatility index, there is a very small potential reverse head and shoulders on the $VIX which is better seen on the hourly chart. Maybe that could support a VIX move up before another test down. Yet you can also see on my daily VIX chart below that it's testing an area with a lot of potential support.

Also remember that before a significant stock market top, we will expect to see VIX make a higher low. That doesn't really seem happening here. So on the one hand we might see VIX rebound just because of the channel and support levels. But in the weeks ahead, we will also want to see if the stock market makes higher highs, and if so, whether it does that along with a higher VIX low.

No comments:

Post a Comment