Home > Commodities and Rates, Short-Term Trader > Markets Bouncing Around, But Show Signs of Stabilizing

Markets Bouncing Around, But Show Signs of Stabilizing

Equities found their footing last Tuesday as the SPX held 1140, however; the trend still remains down leaving me with a feeling that the market has work to do before market participants are convinced higher prices can evolve. There have been some positive developments on the technical front which suggest the market should at the least hold recent support and possibly work its way higher over the next few weeks. Tuesday, I cited the divergences in the Volatility Index (VIX) & breadth relative to the price of the SPX along with positive divergences in momentum indicators such as the RSI. If the multi-week downtrend line, where we closed friday can be overtaken then it should help strengthen the bullish case. On the fundamental front headline risk has abated to some degree as things appear to have simmered down a bit in Europe (for now).

The safe haven play in King Dollar appears to have exhausted itself for the time being with sentiment hitting a historical extreme while the Dollar Index (DXY) bumped its head up against a long-term trend-line. Click here to read my recent post regarding the Dollar  A Dollar pullback will likely give risk assets a lift, or at least keep them afloat.

With the DXY bias in mind, I am taking another look at a long opportunity in the Euro. The EURUSD broke down out of a descending wedge last week, but quickly reversed course and is close to creating a failed pattern scenario. Failed patterns can be just as powerful as successful patterns. The bears are stacked mightily against the Euro, with record short positions in both the cash and futures market, but price action has given the bears no need to fear.

However, if the Euro can begin to climb higher nullifying the recent wedge formation and ripples from across the pond diminish it may spook the "johnny-come-lately" crowd into covering, sparking a short-covering rally. Don't get me wrong, I am in no way a long-term Euro bull as I have been highly suspect of the Eurozone experiment for several years now. I am simply looking at the current supply/demand side of things and believe the boat has exceeded its capacity for bearish passengers and due to capsize.

All in all, in the absence of further fundamental shocks, equities and other risk assets should keep their heads above water. Trading will likely continue to be bumpy but with ample opportunity to make trades from both sides of the tape.

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