It's not just about the dollar but let's begin with the buck. As noted here yesterday, sentiment had gotten extreme. Not only for the buck but the euro, the pound, gold, and oil. It was all literally the same trade and both ends had been pulled too far.
So let's look at that reversal in the US dollar. It clearly runs into resistance at 90 which is a round number and which is where it tried to hold before this last push down two days ago. That's the black line. The true resistance is the red line which is 91.50 (red line)
Needless to say the Daily Sentiment Index (DSI) has moved upward, from yesterday's reading of 8 to 13 today. I would reiterate again that when currencies move in integers as they have been these last few days it is more likely that we see an uptick in volatility in markets.
I continue to have my eyes on the ratio of the iShares Russell 2000 Index ETF (IWM) to the PowerShares QQQ Trust ETF (QQQ) chart because it hasn't gone down in three days. I'm still not confident it can turn upward but I am keeping a close eye on it so that if we see signs of life we can jump on it.
What did show signs of life on Thursday were the utes! And no one even noticed the poor utes which were up well over 1% on the day. I continue to think there will be more backing and filling -- it won't be a straight shot upward -- but the Utes should make it to resistance which comes in around that 720 area.
When it comes to actual bond yields I'm not terribly sure where they are going in the near term. We got up into that 2.60% range I kept highlighting and now we have stalled. I would love to see a short-term shakeout back to the 2.50% area for several reasons.
The first reason is because now everyone pretty much expects rates will go higher so a shakeout is preferable. But the other reason is that if the 10-year pulls back to 2.50%-ish the utes have a better chance at rallying.
Finally there is the move in the transports these last few days. They are down 4% and everyone seems so complacent about the move. It's as though they yawn and say, well the airlines screwed everything up. Sure it's the airlines but it's not as though the railroads are cooking with gas. Look at Union Pacific (UNP) . That's a heckuva gap down if you ask me.
I would look for the Transports to bounce off that line around 10800 but the key is how well they bounce from that area. If they bounce poorly (likely) then we're looking at a second lower high.
So I hope you can understand why I think volatility will rise again.