Each day i begin by determining the risk environment and to do this I use primarily the U.S. Dollar Index, the Dow, and crude oil. Today there are a number of levels that are in play and my focus is on the ceiling on the U.S. Dollar Index, the 200DMA on the Dow futures, and the 50DMA support waiting just below current levels on the S&P.
Despite putting in a new high, the dollar sunk back below the 83.67 previous high. The exhaustion reflects just how much the sentiment was bullish into the close after the 2:00 Fed Minutes release where equities sold off sharply.
The S&P does have support waiting below in the form of the (dynamic) support of the 50DMA is prices take another stab at moving lower.
The Dow bounced from the 200DMA which was where the Fed Minutes release pushed prices lower to before rally, the “unworried” rally took the market higher into the close. Down 48 points was a significant afternoon recovery.
All in all, the levels that these three charts are sitting at actually indicate that risk appetite in U.S. equities could persist WHILE the dollar pushes against the 83.67 to 83.76 layer of resistance. Because of that I will continue to look for risk ON entries longer term (like aussie bullish positions) and limit risk OFF positions to shorter-term. I will also keep an eye out for continued dollar strength since there is still a flight to safety play (based on concerns in Europe) but the equities market – heading into earning seasons has been trading north of the 200DMA and holding mainly a neutral to bullish trend.