Three things happened Friday that could lead to a tradable short-term top in the U.S. Dollar Index. This market has been stuck in a 7% trading band since the early March highs. Friday’s reversal lower still provides us with a short entry near the top of the recent trading range.
First on our list is commercial trader activity. We only take trades inline with commercial momentum. They’ve been net sellers over the past six weeks to the tune of roughly 16,000 contracts. This has shifted their momentum to the negative side of the ledger and put us on alert for short selling opportunities.
Secondly, Friday’s reversal lower brought our short-term momentum trigger back below its overbought threshold. We use the same indicators with the same settings on both sides of every market we track in our discretionary email. This helps ensure a degree of robustness as it eliminates optimization and curve fitting issues. Friday’s decline triggered an official COT Sell Signal.
Finally, Friday’s technical action was exceptionally bearish. Bearish factors include an outside bar reversal lower from a new 30 day high. Friday’s reversal also created a bearish momentum divergence by registering a lower high on our short-term momentum indicator, despite making a new high at 93.335 in the September futures contract.
Finally, I realize that this is an exceptionally short piece but, I review nearly 40 individual charts on a nightly basis and rarely does one snapshot contain such a wealth of trading information. The Dollar Index futures opened steady Sunday night for Monday’s trading. We’ll be selling the U.S Dollar Index and placing a protective buy stop at Friday’s high of 93.335. We’ll wait and see if this textbook example of market analysis provides us with a textbook answer….and profits.
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