captain_smollett
教育

DXY vs S&P: they live together and decline together

TVC:DXY   美元貨幣指數
Just a small research I made. Haven´t applied any advanced             methodics though, just a simple comparison.

1. DXY             and S&P             move together on bullish times which means there is a strong demand on US Dollar             to make profit from raising american market. The profit is double: growth of the stocks index and a convertion back from the USD to your own currency which, by that time, should be substantially cheaper than the USD.

2. In times of bearish cycle for the USD, S&P             also goes down or, at least, it doesn´t grow. It is surely explained by a moreless stable domestic demand but a huge reduction in foreign demand, that prefer parking money in Gold             or Japanese Yen             .
2.1. Defensive strategies are applied on stocks market in times of a decline. E.g. http://www.investopedia.com/ask/answers/06/investduringbearmarket.asp

3. In times of a switch between bullish and bearish cycle there was a period when the SP1 Index has already begun to decline but the USD still kept up and renewed peack values. Probably this time we will see a slightly different picture: USD sell-off will start before the stocks market decline as these who invested in stocks will start going back to their home currencies and cancel home loans on an unprecedent low interest rates. On another side, the USD "Safe heaven" period should almost match with the euphoria on the stocks market: we have already seen a 70 bln Dollars capital inbound once the new US President was elected and there should be more to come as money will move from Europe and, specially, from Asia. Therefore, the USD outflow would also start before a definitive decline on stocks indexes and complete a bearish movement after the market hits new long-time lows.
評論: Additional thoughts:
a) I´m getting more and more convinced that market is a price fractal and not a time fractal. Therefore, time projection calculation is always much more subject to a failure risk than price projections.
b) Using the Fibonacci extension tool allows to calculate an approximate top both on the US Dollar and the SP1 indexes. Notice the 88.6% Fibo retracement level from the previous top and 161.8% extension of a bullish run from May 2014 lows.
c) As you also can see on a DXY chart, difference between the lowest values of two different bearish cycles (78.19 and 70.70) matches to the figure the difference between the previous cycle top and the projected cycle top (121.02 and 113.53). It does not say DXY will mandatory top at 113.53 , but it indeed shows that it is a very strong resistance level.


To me, this indicates a very high probability that, if we get to there, we can see strong sells starting at 113.5-115 area.


d) Current SP1 index advance has already overcome and by far the previous bullish cycle run of 1433 points which was completed at 2098.20. On one side, I also used the Fibo 161.8% extension to check where the market could top. On another side, if we take the advance of a hypothetical Wave 1 from 2009 lows and paste it to the current run from 2016 lows, it will match very closely to that 161.8% extension.

I believe this also shows a strong resistance area around 2500 points but, same as on DXY, it does not mandatory indicates that the market will get there or that the market will reverse there with a 100% probability. What it shows is that 2500 is a very strong price area which can be reached with high probability.

d.1) As said before, 2098.20 would have been a copy of a previous bullish run. You can see a strong reversal area around 2100 value. Therefore, in case of a definitive decline, it may be worth to monitor 2100 area very closely and join shorts once this area is breached and price pulls back in an attempt of getting back higher.

Price may also false-break this area and the pop up but having calculated the projected targets for DXY and SP1, one have a very powerful instrument to separate a false decline from a definitive decline and, possibly, even buy the dips instead of getting wrongly involved in a long-time short position
評論: Closer look on current bullish run:
評論: As you can see, once we reached the time length of a previous bullish cycle, market found itself in a situation where, by far, it hasn´t reached the projected targets. Therefore, after a small decline, it headed to the projected target zone.

As an additional thought, Elliott Wave analysis would be an extremely powerfull tool for target projection and the cycles may confirm whether the projection is correct or not.

評論: An additional chart which explaines a boost growth:

https://fred.stlouisfed.org/series/IMFSL
and an explanation:
https://en.wikipedia.org/wiki/Money_market_fund
評論: Mentioned at StockBoardAsset.com :
http://stockboardasset.com/insights-and-research/dxy-vs-sp-live-together-decline-together/

Really pleased! =)
Good stuff, keep learning new things from you, thanks!
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@menyuken, Glad I can help! =) I'm trying to learn something New every day and post here as much as I can
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menyuken captain_smollett
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