Update

The S&P 500 did erase the prior little wave down in less time than it took to form, confirming that the uptrend is still intact. Sentiment is excessively optimistic, as it has been for some time. So it is hard for me to imagine that this is kicking off a new significant leg up in stocks, but until proven otherwise that is what price is saying. The benchmark for me is the April 18th low. If that gets exceeded on a decline, then I would take that to indicate that price is making a significant top.

It seems as though the current moves up in gold, silver, and oil will have to break before stocks break significantly. The US dollar has broke through a significant old low bringing out some bearish sentiment. A reversal higher from these levels to above the Nov 2009 lows would be a good intermediate to long term bottoming sign. But the next support would be the 2008 lows. I think either of these are likely reversal points. A break of the 2008 lows seems like it would be a MAJOR psychological capitulation point, possibly leading to a large double bottom chart pattern.

The cotton ETF trade, BAL, is off and running now, and it seems very likely that cotton has seen a major high.

I believe that the grain complex is near breaking down as well. I may recommend a short on DBA soon. The sell offs in several commodities should be pretty dramatic after the high is in. It looks most likely that the high is in for DBA already, but I would like to see a few more days before suggesting an entry on it.

For those who follow the metals markets, silver is only pennies away from its all time high in 1980. I expect that high will get exceeded at least slightly before a major high is in. But it could come down dramatically for several months if it fails at that high.

Possible Pattern Completion

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If the market surges up from here and erases wave "e?" in less time than it took to form, that logically confirms a continuation of the bullish trend. If there is a break of yesterday's low then most likely it would lead to further selling.

Expect Some Downside

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The US Dollar took a big hit Friday, but remains above last years low. Sentiment is very negative and could lead to a major reversal. The chart above shows a price oscillator which is nicely bullish divergent and is coiling suggesting a breakout soon. Also, the weekly oscillators are in a nice bullish divergence as well. A move back above the dashed green line would be a reasonable long trade entry signal.

News got around that PIMCO is net short the US treasury bonds now, which suggests an inflationary stance (falling bonds and rising yields). I just think this may be a nice contrarian sign that the dollar may reverse after the news is out.

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The move up in the S&P 500 since mid March has now equaled the time of the correction. Also the S&P did not make a new high, nor did the Nasdaq. So, it is likely that the psychological trend is still in a correction. I expect the market to at least pull back from here toward the 1295 mark, but possibly a lot lower.

SPY Analysis

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The chart above is SPY with a 50 day MA and some dashed horizontal lines at recent unfilled gaps. I would expect the current rally to at least fill the recent large gap down before reversing to the downside. The recent sell off triggered some signals that would suggest a 1-2 week minimum decent rally. So I think the rally may be likely to push back toward the prior gap down from March 10th.

The VIX/VXV ratio poked up to about 1.09 last week which suggests at least a short-term low based off of past data.

The NYSE McClellan Oscillator got reasonably oversold this past week, however, at basically every other significant low in this bull market, it showed a minor or major bullish divergence before a lasting rally. It did not show any divergence yet on this decline. So we may expect at a minimum another push to the lows or lower with some improved breadth before a sustained advance.

The inability of the market to add gains to the gap ups at the end of this past week, also may be indication that the selling hasn't run its course yet even in the short term.

US Dollar Index Technical Set-Up Very Bullish

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The chart above is the US Dollar Index. It shows a retest of the November low. Remember in November the QE II was announced. And it was presumed that such an event should be bearish for the dollar because it is inflationary. However, the market rallied in typical contrarian fashion.

The technical set-up shows a running bullish divergence on the daily MACD. The prior bullish divergences are highlighted on the chart as well. Also the RSI (10) shown is at a second and stronger divergence on this minor dip to new lows. The last couple significant bottoms in the dollar showed a similar set-up where at the price low, the RSI (10) could not even touch the oversold 30 level.

The current decline also looks like a possible ending diagonal type movement which is an explosive chart pattern that should retrace to the beginning of the pattern (January high in this case) in about 1/2 of the time of the decline, or even faster.

This suggests serious strength in the US Dollar and serious weakness in commodities beginning very soon if this signal is of similar caliber to the last two like it. Sentiment and real money commitment of traders data suggest a bullish move ahead also.

Stocks and Commodities

Stocks have confirmed a likely intermediate and possibly a major high. The current decline has lasted longer than any since the July low. This suggests a higher order top has occurred than any since that time. Expect continued intermediate term downside, though a breather rally could occur at any time here.

I have posted for the last couple months that commodities were topping. As is the case often times, once it is, you don't have lots of time to get out of the way before the market has proven it to you. Expect continued intermediate to longer term (1+ yrs) downside.

The recent news driven rally of oil is likely a last gasp that drew dumb money in and will ultimately lead to a lengthy sell off in oil and commodities. As seen in the chart below, large speculators, the big money that drives trends, have gone record net long oil. And the commercial hedgers are record net short. This goes back decades longer than the chart shows. It is a new record. Yet oil is off the all time highs substantially. This indicates a huge build up of long positions that will have to be sold off and open interest will have to contract dramatically before price is stable. Based off the data, my suggestion is that oil will decline below the 2008/2009 lows prior to the next bull market.

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I continue to view cash in US dollars as a reasonable investment for the next few years. It has not heated up yet, and that does surprise me a bit with the weakness in commodities, but I think we will have to see that at some point, particularly as oil weakens. It is the way the markets are fundamentally linked.

Exit the Recent SPXU Trade

I am recommending exiting the current SPXU trade. The current price is 17.35.