US Dollar Index will suggest the next market direction today

Wall Street fall for the fourth day in a row

US stocks closed negative yesterday, following a negative trend that is lasting for the past 4 days.

The main reason why the markets are falling is that investors are worried that the Federal Reserve will continue to hike the interest rates in order to reduce inflation.

Strong economic data have shown that there is still work to do for the Fed and its monetary policy implemented so far is not as effective as it should be.

That means that Fed could continue to hike interest rates for a longer period in 2023 with the risk of causing a recession.

S&P 500 Technical Analysis – Daily Chart

 

The S&P 500 price broke below the 21-day MA (blue moving average) and it’s currently testing the horizontal support line at around 3900.

In the past few days, the index price has also been rejected at the bear market trendline (see red circles on the chart) and the price fell below the 200-day MA (green moving average).

Those are bearish signals.

If the price is able to hold the support at around 3900, we could see the price increase and retest again the bear market trendline, otherwise, prices could drop to the next support level at the 50-day MA (red moving average) at around 3837.

The only option to change the current scenario to a new bullish trend would be for the price to move back above the 200-day MA and then the trendline at around 4100.

The RSI keeps moving lower to 48, indicating a neutral/bearish trend.

US Dollar Index Technical Analysis – Daily Chart

 

The US Dollar Index measured the value of the US dollar relative to a basket of the top 6 currencies.

Usually, the US Dollar and the S&P 500 move in opposite directions.

Stocks in the S&P 500, like many other assets, are priced in USD.

When the USD is increasing in value, it takes fewer US dollars to buy assets priced in US dollars, so the prices of those assets tend to fall.

For this reason, it is important for US stock investors to monitor the value of this index.

Recently, the U.S. Dollar Index has broken below another key support level, its 200-day MA (green moving average).

This is a bearish signal for the dollar, but it’s a bullish signal for stocks.

If the Dollar Index will get rejected and will remain below the 200-day MA, it could support a rally in the S&P 500 Index for some time.

However, both the S&P 500 and the Dollar Index are trading below their key level right now, which is unusual, so the next direction of the dollar will be a leading indicator for US stocks.



Today’s price action should provide the answer.

Sentiment Indicator – Fear & Greed Index

The market sentiment is at 59  in the “Greed” mode which is lower than the level registered one week ago.

FedWatch Tool – FED rates probabilities

77.0% of investors are expecting the FED to increase the interest rates by 0.50% in the next meeting.

The remaining 23.0% are expecting a 0.75% rate increase.

The data show us that the number of investors expecting an increase of 0.75% is getting a little bit higher than in the previous days.

The next FED meeting is approaching next week, on 14 December 2022.

Portfolio Update

My portfolio allocation remains unchanged at the moment.

Overall, the majority of my positions are bullish (LONG).

I have a few short positions opened recently that I am monitoring and waiting for the right time to close or I could add more shorts if the price reverts to the downside.

Right now I am neutral on the stock market, as the price can go in any direction in the short term.

I am keeping my risk score low and I have some cash available on balance to use for new trades.

If you are already copying my portfolio, please keep the copy open.

If you are thinking of copying me, now could be the right time, if you can invest for the long term (years).

Remember to copy the open trades to optimize the copy.

Remember to set the stop loss on the copy at the minimum level, so you don’t get stopped if there is a correction.

Thank you, everyone. Have a nice day!

Steps to follow to copy my portfolio automatically:

1. Create an eToro account here: https://federicamontella.com/go/etoro/

2. Verify your account and make a deposit of at least 200 USD (you can deposit in any currency, like GBP and EUR)

3. Go to my profile page: https://federicamontella.com/go/etoro-passionforprofit/

4. Start the copy (copy open trades and set the lowest stop loss possible, to allow some movement)

5. Enjoy, it’s all automatic. You will make passive income 24/7

Let me know if you have any questions.

 

Federica Montella

eToro Popular Investor

 

Follow me on social media

LinkedIn

Facebook

Twitter

Instagram

YouTube

Sign up to receive my latest articles in your inbox



Author: Federica Montella
eToro Popular Investor, food lover and blogger. Stock trader and Popular Investor at eToro. I am on a mission to find the best restaurants and food to eat.