As expected, the Shanghai Composite index encountered pocket resistance on the weekly chart.  Despite major news outlets decrying the 20% drop as the beginning of a bear market for China, it is actually a healthy pullback after a total gain of 109% from the November lows.  This pullback can be considered the handle of larger cup & handle formation – this setup was also encountered in the March 2009 lows.

Examining the daily chart, it appears that 2,750 will be a very crucial technical level to establish itself as a short-term floor.  This is where pocket support should come into play on the weekly time frame, and it a test of the rising trend line from the 2009 January – March spike lows.  It is also a 50% Fibonacci retrace of the advance from the March low.

Much thanks goes to Steve Garner – Gatetrader – for his ongoing insights found in the commentary section about the S&P, crude oil, volatility, and interest rates.  He taught me almost everything I know about bonds and interest rates.  Along with Ox, another great trader, he opened my eyes to inter market dynamics and paved the way to foreign exchange trading.

The dollar has been slapped around for quite a while now.  There are signals which suggests a trend change is in the making which will have a profound effect on commodity prices and markets.

In early March a wolfewave pattern gave rise to a topping pattern in the dollar index.  Now there is a clear positive divergence (lower prices, higher momentum) which was confirmed in Friday’s trading session.  The larger structure suggests that an Elliott 5-wave pattern has completed, and in the weekly timeframe there is pocket support and the presence of a large A-B-C structure.

Crude Awakening

Crude oil drives both political and psychological markets.  It is now against pocket resistance on the daily charts at 72.  This swing trade will be very profitable on a move back to the lower 60′s to form some type of channel or symmetrical triangle pattern.  Pocket support will be around 62-63.