09.24.2023
We study price action of the US Dollar Index & The S&P 500, and then create a map to track prices against as they unfold into 2024.
As of Friday’s close, 09/22/2023, the US Dollar Index(DXY) closed higher for the 10th week in a row. This has only happened once before since 1980. The year was 2014, and the month happened to also be September. Charts 1 & 2 below show the 2014 and the 2023 signals, marked with orange arrows, as well as price action around those signals. The red dashed lines measure the declines, and the green dashed lines measure the subsequent climbs ahead of the signals.
Chart 1 shows DXY around the 2014 signal. After the signal, DXY actually extended its streak 2 more weeks, making it 12 consecutive weekly closes higher. It then had a short 2-week correction, followed by an additional rise of 18.4% over the next 6 months as shown by the black dashed line. During that 18% rise, DXY closed higher roughly 16 of the next 21 weeks. Chart 2 shows price action before the 2023 signal.
Chart 1: DXY Before & After 2014 Signal. Click To Enlarge.
Chart 2: DXY Before 2023 Signal. Click To Enlarge.
Charts 1 and 2 above show DXY’s price action ahead of both signals had similarities and differences. Both times DXY fell (red dashed lines), bottomed, and then climbed (green dashed lines) before flashing the signal after 10 consecutive weekly closes higher. The similarities and differences are summarized in Table 1 below.
Table 1: Similarities & Differences Ahead of Both Signals. Click To Enlarge.
WHAT DID THE S&P 500(SPX) DO FOLLOWING THE 2014 SIGNAL?
What can this signal from DXY tell us about the future price path of SPX? While a single occurrence is insufficient to reach any highly probable conclusion regarding a future price path, examining the price action after the 2014 signal does let us create a diagram or map of the past. Using that past map, we can compare how price action unfolds after the current 2023 signal and compare the two price paths. Chart 1 above showed us what the DXY did after the 2014 signal. Chart 3 below shows us what SPX did after DXY's 2014 signal.
Chart 3 below features weekly price bars of SPX in blue and DXY in black. The green and red lines/text point out performance over the following 4 quarters from the 2014 signal in orange. Chart 3 also illustrates the following:
The year leading up to the 2014 signal, DXY went sideways while SPX rose.
After the 2014 signal, DXY rose another 18% over the following 6 months. SPX also rose, though at a slowing pace, for roughly 3 quarters before it fell as the weeks progressed from 39 to 52.
Beyond the 52 weeks following the 2014 signal, DXY went sideways for almost 2 years and SPX did the same.
During the last part of 2016 into 2017, DXY in black printed a failed breakout and then fell sharply. SPX looks to have anticipated that failed breakout and began its rise ahead of DXY’s failed breakout.
Chart 3: Price Action. DXY & SPX Before, During, And After The 2014 Signal.
Click to enlarge.
Table 2: DXY & SPX Performance Following The 2014 Signal. Click to enlarge.
TAKEAWAY(S)
There are some significant differences going into the 2014 versus the 2023 signal.
Ahead of the 2014 signal, SPX was moving higher from the 2008 low for almost 6 years. Ahead of the 2023 signal, SPX was moving higher from the potential October 2022 bottom, almost a year ago, after the peak in January 2022 and a 10-month downtrend.
Ahead of the 2023 signal, as shown in Table 1, DXY fell almost double over the same time span than before the 2014 signal. The magnitude of the 2023 move was larger.
The subsequent 6% rise from that bottom ahead of the 2023 signal took almost half the time to generate the signal than it did in 2014. The time of the rise ahead of the signal in 2023 was quicker.
Those differences aside, we can finally share the diagram/map we created from the results following the 2014 signal. This tool tells us where we can expect price to be in the quarters ahead, for both DXY and SPX, should price action unfold similarly to the way it unfolded after the 2014 signal. By tracking the paths forward from the 2023 signal, we can compare the current paths to the theoretical paths based on the 2014 signal. Understanding the similarities and differences should provide valuable information regarding expectations of future price action.
Table 3: DXY & SPX. Approximate Expected Prices & Dates,
Should Prices Take Similar Paths As After The 2014 Signal. Click to enlarge.
As always, thank you for reading. I’d love to learn your thoughts.
E-mail: Louis@eastcoastcharts.com
This article is for educational and informational purposes only. The author may or may not have a position in the securities mentioned. Read our full disclaimer here.