Stocks & Commodities V. 28:10 (98, 96): At The Close by Donald Pendergast

Stocks & Commodities V. 28:10 (98, 96): At The Close by Donald Pendergast
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At The Close by Donald Pendergast

The US dollar tends to trend reliably across time frames, but is this new daily chart rally just a minor retracement of an emerging downtrend or is the bull run that began in December 2009 reasserting itself?

The US Dollar Index (DX) has taken quite a tumble since making an enduring swing high in June 2010, but powerful support levels (made during the recent February–March 2010 consolidation) near $80 appear to have had a major effect with the DX reversing sharply higher over the last six trading sessions. But can the rally last? That’s the big question.

Figure 1 is the daily chart for DX; using the TradeStation paint bar feature, I’ve plotted the Barry Taylor ProAm paint bar study. The blue bars represent professional (smart money) activity; when they occur near major support levels, they are a very reliable indication that an emerging reversal and/or trend may have some room left to run. Conversely, when the blue bars manifest at significant resistance levels, a pullback or selloff may be approaching. Like any single technical tool, for best results they need to be used in conjunction with other noncorrelated indicators, but they seem to work very nicely all by themselves as long as you can identify the key support/resistance (S/R) levels on a given chart. The fact that the most recent blue ProAm (short for “professional/amateur”) bar had such wide range lends extra credibility to the bullish reversal.

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