Wednesday, January 18, 2012

4 Hour Dollar Chart Reveals Imminent SP-500 Correction

I was looking at the US Dollar Index ($DXY) 4 hour chart this evening with my favorite True Strength Index (TSI) indicator set to (7,4) and I began to notice the occasional but very severe down spikes in the TSI over the past 8-9 months. These unusually severe readings are, of course, temporary periods in time when the US Dollar Index has come under extreme selling pressure and downward momentum is incredibly and unsustainably intense.

But just looking at this chart really did not tell me much more.

Then I got to wondering. How do these down spikes compare with a chart of the S&P 500? I mean, is there any correlation between the two? Could these extreme and unusual selling episodes in the US Dollar Index possibly tell us something about the movement of the stock market?

So, being the researcher type that I am, I dutifully wrote down the meanest looking down spikes noting their dates, hour and TSI reading. Then I began to locate these dates on a daily chart of the SP-500 - then I recalculated the stock market's daily cycles.

Somewhat to my amazement, there it all was in one easy to grasp picture. The down spikes were not random after all. 

Each daily cycle had just two of these critters, with the second one coinciding within days, if not hours, of the beginning phase of the journey into the final cycle low. 

Click on the chart to ENLARGE
The most severe reading was recorded on July 26, 2011 at -0.86 (far left daily cycle rectangle). The second most severe reading occurred today with a measurement of -0.81 (far right daily cycle rectangle).

As we are on something like Day 35 of the current daily cycle and with the TSI reading of an unusually severe sell-off in the US Dollar Index occurring today I have no doubt the stock market is about to take a nice nose dive. 

The other thing I would mention is the size of these daily cycle finales. I don't see one on the chart any less that 100 S&P points. Do you?

Thurs. Jan 19 
2:30 pm est

The current reading is not -0.81 as last evening, but -0.89. This is incredible selling pressure.
I think if the US Dollar's sellers put any more logs in the fire the iron pot belly will begin to melt. 


  1. Another nice find! I've been getting impatient but you keep giving me hope.

  2. Excellent Post John. You amaze me with your ability to find gems of research. Looking forward to that dive in SPX.. Best, Michael

  3. Interesting article and one I happen to agree with. I read another article somewhere saying roughly the same thing.

  4. I cannot make any sense out of this. There is no -.81 indication on the TSI for today, 1-18-12. It looks like a +.55 to me. Most of the other numbers you mention don't agree with the TSI readings either. What are you talking about?

    1. Anon, Same problem overhere. I'm using TOS-data. I checked also on /DX, but no sigar.

  5. Anon - perhaps the data I show has something to do with the title of the article?

  6. gold miner:Thanks a lot John for CDY call 2 weeks ago,which I got for 1.02,getting very impatient to sell it.And sure I was bying heavily TVIX and TZA today.Hopefully it will pay good.Thanks.

    1. I'm always amazed at how counterintuitive the sell points seem to be when you're sitting right on top of them...everything looks so rosy for continued never-ending bullishness. Next, the market does the opposite you expect - then you wonder how anybody could have seen that coming. Modern technical analysis in the hands of an expert seems like giving sight to the blind. Great work Sir!

  7. Anon - wow, that darned CDY closed today at $1.29. NICE TRADE and way to hang in there!!

  8. John, what do you think about gold right now? It had a trendline/zero crossover on the 4hr a little earlier.

  9. rckt - I personally would not touch gold with a 10 foot pole right now, nor
    do I want anything to do with the miners or silver. Gold was at $1650 a full
    week ago. Since then we have had quite a little show from the US Dollar melting
    down - and GOLD IS STILL $1650. When the selling comes in the stock market (maybe
    not until early next week) this precious metals complex will take a hit.
    IMO, better to wait until after the storm passes, then buy are real bargain prices.

  10. awesome find, John! And thanks for sharing it!

    Did you short stocks based on this, or are you waiting for a swing high (or some other form of confirmation)?

  11. pC - I already have sold two ES (E-mini S&P 500 Index Futures) contracts and
    at 50:1 leverage that is about as short I care to be anything. My expectation
    is to hold these positions at least until the trend line of the current daily
    cycle is broken to the downside. My cost basis for the 2 contracts is $1293.
    As long as the correction gets the show on the road by Jan 31 or shortly thereafter
    I should come out OK. But as always, no guarantees.

  12. thanks, John. Good luck with the ES contracts!

  13. Nice Information! I personally really appreciate your article. This is a great website. I will make sure that I stop back again!.