Waiting For Direction

Alright, we're up huge. People are nervous for a number of reasons, but they are starting to get pretty bullish on a technical level. They are also bullish on a "hope that this was QE3" "can't fight the Fed" mentality. Hey, they could very well be right. Fighting the Fed crushed me last November and December.

However, it really is all about this chart.

This is the US Dollar ETF, UUP. We are currently consolidating in a triangle pattern at the top of the upward channel which has been formed between this summer and today. If we break to the upside, we likely complete a cup and handle formation which should bring us to new 2011 highs. It will take a break of 22.64 for this to trigger, and it would likely happen in mid-December, says an eyeballing of the chart.

If we break to the downside of this triangle, equities and commodities would likely rocket skyward. This would probably take a serious downside hit to the Euro. If the Fed's swap lines have successfully strengthened the Euro for good, the dollar should weaken. If this is so I will cover shorts and change my mid to long term options strategy, however day trading has started to work better from the short side again.

UPDATE: Speaking of the Euro, I just went through the daily and weekly chart, with fresh lines. There is a massive head and shoulders visible on both forming over the course of this year. Check them out. They could invalidate, or they could trigger. There is significant trendline and pitchfork resistance above and below.

Short term it looks possible for a move to the upside, which would break the UUP triangle to the downside, bullish for equties. If we have a significant selloff in the Euro within about 1 week, we should see a break to the upside of the UUP triangle, moving towards confirming the C&H.