At Inflection Points?

BarrMetrics Views: At Inflection Points?

Once in a while, the instruments I follow all line up at a ‘do or die’ point – what I call inflection points. Their resolution provides a highly reliable ‘line of least resistance’ for the next few months. We appear to be at such a point now.

First, I’ll take the DX (US$ Index) as a substitute for the US$ against the majors.

Figure 1 shows the DX with a 12-month swing (Yearly Trend). If the current move is a 13-week correction (quarterly trend correction), within a 12-month structure, it appears to be taking the form of a Running Correction. If so, the most likely retracement is between the 40% and 60%, 78.59 to 82.67 (basis CSI’s Perpetual Series).

A 13-week correction’s usual magnitude is 7.42% to 7.92% and 10 to 14 weeks.  This provides a time and price target of Feb 5 to March 5 at 79.75 t0 80.12.

This statistical upper  boundary is just below the 50% retracement of 80.47. I will be looking for a failure below the 50% retracement – if the DX is to continue its 12-month downtrend.

But that’s in the future. What about now? What signs do we have that the current correction down may be over? To answer this question, we need to drop down to the 5-day and 18-day trends.

Figure 2 shows:

  1. The 18-day (monthly trend) has completed an 18-day change in trend pattern (down to up) first signaled by the Spring on Dec 7 and completed on Jan 06 2010 when we saw 9 consecutive days at or above the breakout price, 77.1 (Whole Point Count Filter – see Nature of Trends). This is to be expected if the 13-week is correcting.
  2. That critical support is the start of the Primary Sell Zone at 77.21.
  3. Looking at the stats, we see that a normal 5-day correction in terms of price ranges from 77.23 to 77.07. So far we have seen a correction down to 77.42. So in terms of price, we have some scope for lower prices.
  4. However, in terms of time, we are at the extremes. We have seen a correction of 8 days. A new low would mean at least a 10-day correction.  The usual correction is 3 to 4 days with the extremes being 8 to 9 days.
  5. Finally the price action since Dec 22 09 looks corrective with overlapping ranges and no clean impulse structures. Figure 3, the 60-minute chart (basis Nearest Futures Month) shows this clearly.

In summary:

  1. I would prefer to see the DX remain above 77.21 (77.19 basis March). At the very least, I would not want to see acceptance below 77.21 (77.19 basis March).
  2. We have a confirmed 13-week correction. The possible target for the end of this is  Feb 5 to March 5 at 79.75 t0 80.12.
  3. In current correction, we have a 5-day correction. We are at the outer boundaries in terms of time but a price correction to 77.21  (77.19 basis March)  is still acceptable for the 13-week scenario to remain ‘alive’.
  4. Acceptance below 77.19 (basis March) would suggest the US$ rally is over.

Tomorrow I’ll look at the S&P and consider its position in light of the above.

2010-01-07-blog-dx-13w.jpg

FIGURE 1 12-Month DX

2010-01-07-blog-dx-5d.jpg

FIGURE 2 18-day and 5-day DX

2010-01-07-blog-dx-60-min.jpg

FIGURE 3 60-minutes DX

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