Musings on a Stack of Charts

 | Feb 10, 2013 | 7:00 PM EST
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If we look broadly at the stock market, Friday's rally did nothing to change the statistics. Breadth was good, but it did not manage to flip the McClellan Summation Index back upward. Volume was light, and net volume did not keep pace with the NYSE advance-decline line. The number of stocks at new highs, at just over 300, is still contracting. But the market doesn't much care about any of that right now.

So, instead of reviewing this further, we'll take a look at some of the charts folks have inquired about recently.

We'll begin with the euro-yen currency pair. I had originally calculated a target at the 120-to-122 area, and while it paused there for two weeks, it has since surged to 127-ish before it began to come down. Before we look at the chart itself, you might want to note that this chart bottomed along with the stock market -- so do take notice that it has now given up the last two weeks of gains. When we look at the chart, we see plenty of support at that 120 area, based on the uptrend line. I think it will reach that level.

Euro-Yen Currency Pair

The dollar-yen cross appears to have the same pattern, but it actually underwent a much steeper rise. Unlike the euro-yen pair, the dollar-yen has not yet taken out last week's low. Its uptrend line, at just under 92, is much closer to the current quote than is the euro-yen's uptrend line (at 120). While the dollar-yen may find support at 92-ish on this first trip down, I think it should eventually find its way toward the thinner line near 90.

Dollar-Yen Currency Pair

As we all know by now, I am a fan of the dollar, lonely as that view is. I see this as a giant W-shaped pattern (drawn on the chart). The downtrend line on the dollar index is just overhead, a smidge above 80, which may or may not act as resistance the first time up. In my view, those two spike highs at 81 represent a more substantial resistance area. In fact, I'd love to see the greenback cross that downtrend line, get to 81 and draw in some bullish chatter -- and then pull back to retest the line. That would make for a better basing pattern (drawn in grey on the chart).

Dollar Index

As for gold, I continue to see very little here. In fact, a break of that small uptrend line on the April contract would set up a test of that spike low around $1,630 per ounce. Perhaps then we'd see a shakeout and enough panic for a decent rally. Otherwise, there is nothing to see unless it breaks out above $1,700 on the upside. If this happens, it will probably be because fear has come back into the stock market -- which all the bulls assure me will not occur.


I was asked if the chart of Italy's FTSE MIB, which I showed here Friday, could become a cup-and-handle formation and be seen as bullish. So I took a look at the longer-term chart of the Italian market, and I discovered there is potential for a bottom: A pullback toward 15,000 would retest the downtrend line and flesh out a base. Of course, that is 10% down from the current level, so perhaps that isn't what folks want to hear.


Finally, here's a follow-up on the chart of the Philadelphia Semiconductor Index (SOX), which I posted here last week. At the time I noted a climb toward the 425-to-430 area would likely end the current rally. With the SOX closing just shy of 425 Friday, I thought I would point out that there is a gap to fill around 430, so it is getting into that zone of "enough" for now.



Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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