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U.S. Dollar May Trump Greek Drama

If UUP overcomes 50-day it may mean decline in stocks regardless of EU news


The Greece story was in focus again yesterday. The U.S. markets were in negative territory for most of the day as a result of negative sales data, a downgrading by Moody’s of the debt ratings of several eurozone countries’ debt, and negative outlooks for France, Austria and the UK.

But in the last 30 minutes of trading, the Dow Jones Industrial Average jumped 88 points as a result of a supportive statement by one of the opposition leaders in Greece who had been blocking further measures necessary to meet the zone’s criteria for capital injection.

At the close, the Dow was up 4 points to 12,878, the S&P 500 fell a point to1,351, and the Nasdaq was unchanged at 2,932. The NYSE had another day of light volume with just 743 million shares trading while 475 million shares traded on the Nasdaq. Decliners exceeded advancers by 1.7-to-1 on both exchanges.

Dow Chart
Click to Enlarge

After weeks of buyers and sellers focusing on earnings, economic issues and technical analysis, this week they have reverted back to reacting to every nuance of news from Greece. This chart tells the story of a market going bonkers. With this sort of volatility the sole logic appears to be, “if it’s low buy it, and if it’s high sell it.”

UUP Chart
Click to EnlargeTrade of the Day Chart Key

In Thursday’s Daily Market Outlook, I noted that the U.S. dollar, as shown by the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP), had reversed following a buy signal from our internal indicator, the Collins-Bollinger Reversal (CBR). Since the dollar andU.S. stocks usually trade opposite to each other, this was a warning that stocks would likely head lower. 

The dollar was up again yesterday, but traders were more focused on last-minute happenings in Greece and hopped on stocks in a low-volume, highly volatile rush to buy. Their last-minute market gymnastics don’t change the fact that stocks are still overbought and a minor pullback is under way. 

However, instead of watching the Greek drama, watch the movement of the dollar. Its 50-day moving average is a major technical barrier, which, if overcome, could lead to a decline in stocks.

SPX Chart
Click to Enlarge

And the S&P 500 is very close to major resistance at 1,356 to 1,371 (the high of last year). The near-term guideline has become clear. A violation of the support line at 1,333 will no doubt lead to a decline, and the penetration of the high at 1,371 should be followed by a major rally. But even if the 1,322 to 1,333 zone doesn’t hold, the overall trend is still up and weakness should be used as a buying opportunity.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

Article printed from InvestorPlace Media,

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