CRB INDEX IS FINDING SUPPORT ALONG ITS 2009 LOW AS DOLLAR INDEX BACKS OFF FROM RESISTANCE -- ENERGY SPDR AND CRUDE OIL ACHIEVE UPSIDE BREAKOUTS -- ENERGY STRENGTH IS HELPING THE STOCK MARKET
DOLLAR INDEX IS WEAKENING... For the first time in nearly a year, the U.S. Dollar is showing signs of weakness. The daily bars in Chart 1 show the PowerShares US Dollar Index Bullish Fund (UUP) trading lower after forming two declining peaks since mid-March. It's now headed for a test of its 50-day moving average. That support line hasn't been broken since last summer (ten months ago). I doubt that this is a major top in the dollar. But the steepness of its advance over the last year certainly leaves it vulnerable to some profit-taking. Its 14-day RSI line (top of chart) is testing intitial support at its 50 line. That hasn't been broken since last summer either. Daily MACD lines (below chart) have also turned negative. Its weekly chart also suggest a market that's in need of a correction. The 14-week RSI line in Chart 2 has dropped below overbought territory over 70 for the first time since last October which is usually a sign of weakness. Weekly MACD lines are in danger of turning negative for the first time since last spring. The horizontal green bars represent Fibonacci retracement levels which should act as support if they're reached. The top line represents a 38% correction and is a potential downside target. The weaker dollar over the last month helps explain recent bounces in commodity prices and stocks tied to them. It also explains recent upturns in foreign stock markets tied to commodities like Brazil, Canada, and Russia.
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Chart 1
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Chart 2
OVERSOLD CRB INDEX BOUNCES OFF CHART SUPPORT... The brown weekly bars in Chart 3 show the CRB Index (of nineteen commodities) bouncing off long-term support formed at the start of 2009. Its 14-week RSI line (bottom of chart) is also rising above 30 after spending six months in deeply oversold territory. That combination suggests that the commodity plunge that started in the middle of last year may have seen its worst. A big reason for the commodity plunge was the sharp rise in the dollar (green line). A rising dollar is normally bad for commodities. The dollar (UUP) has also reached potential overhead resistance along its early 2009 highs. A correction in the dollar would give an added boost to commodity prices and stocks tied to them -- like energy.
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Chart 3
ENERGY SHARES ARE AT LONG TERM SUPPORT LEVEL AND MAY BE BOTTOMING ... The above headline is taken from a market message I wrote on February 5. The weekly bars in Chart 4 are an updated version of the chart shown two months ago. The Energy Select SPDR (XLE) was starting to find support at a rising support line drawn under its 2009/2011 lows. The earlier messsage suggested that would be a logical spot for energy shares to attempt to form a bottom. It also suggested that an upturn in the XLE would increase chances for an oil bottom. Over the last three months, the XLE has gone from the market's weakest to its strongest sector. And it has risen to the highest level in five months. That usually bodes well for the price oil. Crude hit bottom in the middle of March and has since climbed more than 30%. The weaker dollar is part of the reason why.
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Chart 4
UPSIDE ENERGY BREAKOUTS... The daily bars in Chart 5 show the Energy Sector SPDR (XLE) climbing to a new five month high today after exceeding its February peak at 82. That upside breakouts supports the view that energy shares may have bottomed. They still have to clear their 200-day average to strengthen that positive view. [The rebound in energy shares is also helping the stock market]. Crude oil is also experiencing an upside breakout. Chart 6 shows Light Crude Oil (WTIC) climbing yesterday to the highest level in 2015. It's trading higher again today. That also supports the view that crude is bottoming. Weakness in the dollar is helping. You'll notice that the mid-March peak in the Dollar Index (green line) coincided exactly with the mid-March bottom in crude. A deeper dollar correction would give oil (and other commodities) an even bigger boost.
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Chart 5
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Chart 6
RUSSELL 2000 HITS RECORD HIGH -- S&P 500 MAY BE NEXT ... The U.S. stock may be getting ready to resume its uptrend. I showed the NYSE Composite Index hitting a record high yesterday which ended a ten-month consolidation. Chart 7 shows the Russell 2000 Small Cap Index also hitting a new record high. That usually bodes well for large cap stocks. Chart 8 shows the S&P 500 testing the upper line in a bullish "symmetrical pattern". An upside breakout appears likely. Stronger energy stocks are helping. So is weakness in the dollar. Dollar strength has weighed on U.S. large cap stock that do a lot of overseas business. Dollar weakness should relieve that negative pressure and help push the S&P 500 higher.
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Chart 7
