Dollar Story (4): All Eyes on the Dollar

I posted advancing to declining volume ratio chart yesterday. This morning, the overall market carried the strength with a gap up open, and gradually pushed this advancing to declining volume ratio to 16, much higher than yesterday's close reading. SPX quickly pushed above 1046 orthodox wave (i) low. Dow went above 9666 and NASDAQ advanced to 2094. The strong rise invalidated my primary wave count because wave (iv) and wave (i) should not overlap each other.

The last two trading sessions open various interpretations on wave structure. A possible bearish count can label the rise from October 2 as another smaller degree wave ii. A bullish count would argue that the primary wave (Y) still has higher potential. We need more clues from market to have a clearer wave pattern.

Today's up move was fueled by weak dollar. Gold made a new high and silver were lagging. Now all eyes on the dollar. The first chart shows dollar's wave structure. We are in final minute wave [5] of the extended minor wave 5.

The overlapped SPX index shows you how the overall market negatively mirrors dollar's movement. You can download SPX and UUP daily close prices from Yahoo and do a simple regression test by using data from 2009 March low, and you will find their correlation is close to -90%. If the same pattern holds, dollar's bottoming process may continuously push SPX higher in next week or two.

The second chart shows an alternative wave count on dollar, which has a triangle wave 4 and we are only in minute wave [3] of 5. This count calls more bearish potential ahead.