Sunday, June 6, 2010

Inter-Market Connectivity

posted Thursday night:

Looks to me like everything converging on tomorrow. $USDX, $GC_F, $CL_F, $SPX, all right at key levels. Will NFP be the fuel or the fade? 7:27 PM Jun 3rd via StockTwits Desktop

Two things to note initially, first each of these broad market indicators had moved to key short term support and resistance levels on Thursday's close. The dollar index bouncing at 87.40 area, Gold between the 50 SMA and 1227 Fibonacci level, Oil at 74.50 and the SPX at convergence of 20 and 200SMAs. Coincidence? Second, look at the 20/50/100/200 SMAs. All rising for the dollar index and gold, and all falling for crude and the SPX. So at key levels and SMAs showing a bias. Hmmmm. Third, as the catalyst hit they all moved with a singular economic reaction, in the direction of that trend, gold and the dollar rose, and stocks and oil sank. Should you expect this? Yes!

All Markets Are Connected

This blog is about Technical Analysis but even a chartist can benefit from understanding how different markets interact. To me the key is the stronger dollar.

Friday's move indicates that the dollar is heading higher, at least to 89.02 a 100% retrace of the down move from the March 2009 highs to December lows. The break out of the ascending triangle, bounded by the 20day SMA would give a target of about 90. The flying dollar gave a boost to Gold which had retested 1200 earlier,

roaring back $20, putting the recent highs back in sight. It also reversed the up move for Crude Oil (West Texas Intermediate) dropping it nearly $4 from the high of the day back towards the 71.20 support.

Most importantly for this crowd, it drove the SPX down all day until it hit key support between 1057 and 1075.

Understanding and watching this interaction can often give clues as to the direction of the market you are trading before the impact is felt. So keep watching the the broader market for clues and absorb the impact to your world.

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