SPY, US Dollar Index, and Natural Gas/UNG

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The chart above is SPY. I have drawn dashed green lines at unfilled gap ups below current levels and dashed red lines at unfilled gap downs from the prior correction. The red dashed lines should be viewed as possible resistance levels on a continued rally. Also the swing highs at the 113 and 117 areas are chart resistance levels.

While not shown on this chart, I see a Fibonacci resistance level at the 116 level or slightly higher. Right now that is what I think is probably the most likely scenario - a move above 1130 to 1160 or higher over the next few weeks. The blue rectangle is the same price(%) and time as the July to August rally. Projected up from the recent lows, that would put SPY a little above 116.

The daily MACD has now made a bullish cross and there is no bearish divergence at this point on the hourly MACD chart. So I would assume there is some upside left in the market at this stage. The next index trade for the blog would ideally be after a couple percent pullback this coming week, to set up a bullish short-term ETF trade.

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The chart above is the US Dollar Index showing the action since the major low last fall. After the high in June, it retraced almost 61.8% of the entire advance. That decline took 2 months. The recent rally since early August stalled out at the 38.2% retracement level of the decline.

However, the rally only lasted a couple weeks. If this move is correcting that entire decline, I would expect it to take as long as the decline or longer. So as long as the lows from August hold, I plan on holding the EUO trade and expect some sideways to upward action over the next few weeks or months.

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This chart is of UNG, the natural gas ETF. I think it may be forming a major bottom. There is a Fibonacci support zone at the 6.14-6.16 area. The most important level is the 127.2% extension of the May-June rally. It sits at 6.14. The particular pattern in play is often called a "butterfly" pattern where the A-B leg bottoms at a 78.6% retracement level and then the C-D leg bottoms at the 127.2% level. Looking at the chart you can see that is in play here.

The daily MACD will make a bullish cross soon with any further upside in prices. Another thing to look at longer term is the size of the major rallies in this bear market in natural gas. The largest rally in UNG since the prior bull market high has been about 38%. There have been a few other rallies around 30%. So if a nice rally takes place, we would want to see it get larger than any other one in order to help confirm a longer term bottom has been made.

I have already covered the sentiment backdrop on Natural Gas in months past, but suffice it to say that this has been a big bear market, and the sentiment is ripe for an unwinding and major bullish advance.