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August 8, 2012 / redman59

Dollar and Bond Action Supporting a Bullish Scenario

I believe the case for a bullish continuation for the rest of the year is setting up nicely. In a prior post titled “Watching For Bond and Dollar Weakness, Not Market Strength” I explained just that in what I was looking for. Recent price action in the Bonds and Dollar are showing me that weakness is starting to show in these two macro trades.

Below is a chart of the Dollar as measured by UUP. Notes can be found on the chart.

Below is a chart of Bonds as measured by TLT. Notes can be found on the chart.

So looking at these two charts I have a more bearish outlook on the Dollar and Bonds. On both I would have like to have seen more volume on the move below the 50 EMA. But I believe watching them for a low volume bounce makes for just as good as a case. In my opinion the current scenario makes a good case for the bulls. Yes I do believe the stock market is a bit extended and that’s why I like these charts right where they are as they look like they could bounce effectively bringing a pull back in the market.

I am looking for the Dollar and Bonds to bounce to their levels that we saw in early August (1st,2nd) thus pulling the SPX back to the 1375 – 1365 area. This would create a good opportunity for those looking to buy the dip. On a side note, if you do plan on buying the dip, buy it despite any news that follows and why the market is down.

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