June 2011

A chart included with the tout for the Dollar Index (DXY) shows how bulls could shift this week's rally into high gear.  All it would take is a thrust above a modest peak just inches above yesterday's high.

DXY appears to be consolidating above the 75.35 midpoint of a bullish pattern on the hourly chart projecting to as high as 77.18. If a move to that number is indeed under way, it would exert pressure in the weeks ahead not only on gold and silver, but on stocks. We should therefore monitor this vehicle closely. Most immediately, a print today exceeding the 75.85 'external' peak on the hourly chart (see inset) would further embolden bulls and put more short-squeeze pressure on bears.

Yesterday's high failed by two cents to surpass a distinctive peak on the hourly chart at 35.995, hinting of more tedium in the days ahead.  We'll raise the bullish threshold a tad today, to  36.355 (see inset), to alert us to a potentially bullish tone change, but it will be of greater use to day traders than to those who would surf the bigger trends.

The robustness of the long-term bull has been sufficient to keep the futures buoyant since early May's corrective low, but because buyers are in no particular hurry to bolt for the next bullish plateau near 1600.00, they've been subjected to considerable buffeting.  For the time being, 'dueling' impulse legs are predicting more tiresome volatility -- nothing that a pop today exceeding 1545.50 wouldn't resolve.

Hidden Pivots are less important to our immediate outlook than the March 17 low at 1237.50.  It begs to be tested, although we should monitor the lesser charts for signs of the corrective rally that could come at any time. It would take a print at 1268.25 to touch one off today, although the external peak associated with that number looks too obvious to give the canny buyer good camouflage. The peak can be found on the 5-minute chart on June 15, at 12:10 p.m. EDT.

Although we’ve turned up numerous instances where ‘k-A’ measurements were needed or even required, rarely in the course of these weekly tutorials have we discussed such subtleties as we found this morning trying to trade a downtrending E-Mini S&P. And speaking of subtleties, looking at Gold’s chart, we considered some subjective concepts related to the impulse leg, discovering in the process that making Hidden Pivots work sometimes requires a little artistry.

The June contract turned flaccid after handily exceeding a rally target at 124^07 and has since created a strongly bearish impulse leg on the intraday charts. Shifting to the September contract, the pattern to watch is still developing on the 240-minute chart, having yet to create a point 'C' high.  If the still dominant bull trend is to resume, we should expect the correction to fail to reach its 'd' target -- to instead reverse from near the still-unformed c-d midpoint.

Monday's dive turned the hourly chart bearish by exceeding two distinctive lows recorded, respectively, on May 26 and June 2. To undo the damage and restore control to bulls for the near-term, at least, the futures would need to hit 1538.25 today, surpassing an important peak made last Friday on the way down.  Otherwise, the August contract is vulnerable to a fall to 1502.20, or to as low as 1485.60 if that last number is exceeded on a closing basis. The chart shows how each of these numbers was derived.

In the chart that accompanies today's tout for the September 10-Year T-Note, I've sketched out a hypothetical correction that shows how we may be able to tell whether long-term rates have bottomed. If so, as shown, the abcd retracement should not reach its 'd' target.