Guest Post: Four Charts: Shanghai, S&P 500, U.S. Dollar And The Dow

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Four Charts: Shanghai, S&P 500, U.S. Dollar and the Dow

Four charts cast a skeptical light on the Status Quo "stories" of endlessly rising equities and the doomed dollar.

Here are the Status Quo's most important investment "stories:"

1) China will continue booming for decades
2) U.S. equities will continue soaring as profits continue rising
3) The U.S. dollar will continue heading down because Bernanke wills it to do so

I would love to believe these magical tales, but the charts cast a skeptical pall on the happy stories.
Beauty and uptrends alike are in the eye of the beholder, so maybe you see uptrends in equities here; I don't.

The chart of the SSEC Shanghai Index is downright ugly. The uptrend line has been decisively broken, and a giant pennant/flag pattern looks busted, too.


The SPX (S&P 500) has also busted its uptrend, and the fan pattern indicates a weakening trend off the March 2009 lows. Notice how the trendline that was support is now resistance--a classic technical sign of reversal.



The dollar's slight uptrend was broken in Bernanke's last-ditch effort to goose the equities market to a new high in April. Since then, the DXY has clawed its way higher while the indicators are showing positive divergence to the buck's weak ascent.

There is great resistance just overhead above 76, as the trendline now offers resistance, as does the 50-week moving average. Those two are roughly aligning with the upper Bollinger band. On a slightly positive note, the lower Bollinger has turned up and the DXY has managed to hover at or above its 20-week moving average.

If the dollar closes decisively above 76.30, then Bernanke has lost control and equities are headed down: a dollar breakout will be in play.

Here is an analog chart of the Dow Jones Industrial Average from 1907 and the present, courtesy of Ron Griess and The Chart Store. Note the uncanny correlation of the two. Correlation isn't causation,of course, so maybe the Dow will sprint to 15,000 from here. But this chart introduces the notion that if history and pattern-matching have any predictive value, the next move will be down.


The truism in technical analysis is that you can always find a chart or indicator to support your belief system. But if we look at these simple charts and simple lines without predisposed beliefs, then what story are they telling?




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spartan117's picture

First three charts look fairly similar, yet you give a bullish bias to the dollar.  Why? 

I am a Man I am Forty's picture

it would be more obvious with a longer timeline

chartcruzer's picture


for example here's ,,,  china,  note the PSAR sell signal[s218729033]&disp=P

but, note the weakest country group if you want to go short = europe (europe has the debt issue)[s235660699]&disp=P

here's the europe chart[s218732180]&disp=P

the dollar has just thrown a long term buy,  note the reliability of the psar signal.[s218820698]&disp=P

also note the euro has been on sell for some time now[s218921789]&disp=P

happy trading....


Highrev's picture

I also agree. Longer term would be good, especially when you're talking about long term secular trends like these:

1) China will continue booming for decades
2) U.S. equities will continue soaring as profits continue rising
3) The U.S. dollar will continue heading down because Bernanke wills it to do so

I would say that something like this might be more appropriate:




snowball777's picture

That might have something to do with the first two charts being identical (Shanghai twice, no S&P).

French Frog's picture

glad that someone else spotted that too; anyone trading will have instantly 'seen' that this wasn't the s&p but that's not to say that the s&p's chart isn't ugly too)!

greased up deaf guy's picture

click on the "of two minds" link at the top of this page to see the s&p chart on chs's blog.

Mr Lennon Hendrix's picture

First three charts look fairly similar, yet you give a bullish bias to the dollar.  Why?


Toolshed's picture

Methinks the bullishness on the dollar is due to the law of relativity. Compared to most other major currencies, the dollar looks pretty good.

lolmao500's picture

Any good Italian-Spain bond short ETF? That could make us some good money real soon.

And all those ``technical analysis`` don't work right now, haven't been working for the last 3 years because of all the shenanigans the governments and the FED have been pulling.

InconvenientCounterParty's picture

set up well for more fiat largesse. Just a little more misery should do it.

baserunr's picture

The obvious story is that Recovery Summer is here!  Again! Still!


Cycle's picture

I think the author meant to post SPX rather than SSEC twice, but the point is valid. I keep looking at long term cycle charts for the DJIA (and the FTSE) and either the cycle models are dubious, or we seem to be at the cusp of a major multi-year drop in equity markets.

Cpl Hicks's picture

Those charts did look mighty similar, did they not?

lolmao500's picture

S&P Cuts Bank of Ireland UK Government Bond Rating to A- from A+

More fun.

shushup's picture

He gave us the Shanghai chart twice instead of the SPX

Stoploss's picture

Descending wedges, all of them. All you need to know.

Tense INDIAN's picture

I just cant wait till tomorrows OPening of the Indian markets ...

Stoploss's picture

Japan was closed today. So far not a peep about it. Guess who gets to play catch up tomorrow. That ought to kill that little 1/2 B pomo tomorrow as well.

Oh regional Indian's picture

We are "In Irons" ladies and gentlemen. Before the ill winds blow, our sails will have little to give us steerage by. That is why so many earth shaking events have happened in this window.

It's all as metaphorical as it is real. Temporary rise in PM's aside, it'll be all down together in a bit, for a bit. Hard.

I'd take a partial profit in metals and sit in cash for a bit.

Dollar cost out over the next 3-4 days. After the 21st, we're in Leo and everyone know's of Cliff high's Sun disease! 


gmrpeabody's picture

I agree with you (on this, anyway). Good time to sell a third and wait.

Oh regional Indian's picture

Respectful consent and dissent are equally welcome to the mix I'm sure gmr.

Glad we agree on something important.


Saxxon's picture

The '08 crash lost the Republicans the White House. Do you think the current Administration will make the same mistake? Do you think they don't have the ability to keep pumping equities with helium, dropping Corexit on RE and airbrushing the news?

I suggest you think again. This Admin has more control over media and markets than any other beast that has slouched out of the hills.

Short at your peril.

Stoploss's picture

It's long at your peril today, bud. (That is what im seeing there isn't it, a little bud?).

oldmanagain's picture

The administration is many months late on some basic Keynesian remedies.  It is true that the banking system needed immediate rescue but government so divided by ideology has not been able to do some very basic, tried and true, solutions to job contraction.  Now contraction is built in and the money was wasted on the banks.

A significant number of Zerohedge and leader want a collapse to rebuild some type of dictatorship of the non-taxable.  Depending on animal spirits to drop goodies in the mail box that no longer gets mail.

i-dog's picture

"A significant number of Zerohedge and leader want a collapse to rebuild some type of dictatorship of the non-taxable"

Please post links to any ZH'er calling for any kind of dictatorship.

malikai's picture

Agreed. But it doesn't sound like a bad idea to load up on some cheap puts. They will need an excuse for QE3, after all. Just sell the good ones off by mid August and it might be some decent change.

SilverDoctors's picture

Maybe the DOW will continue an uptrend in FIAT terms...not in real value.

SheepDog-One's picture

Well thats assuming those are the ONLY 2 factors going forward.

Tense INDIAN's picture

theres no SnP 500 chart

RobotTrader's picture

Bernanke must be watching the XLF in utter horror.  I bet he has an iPad with the 15-min. chart of BAC on it right now.

Meanwhile, nothing to worry about with the high flyers as the "no-brainer" trade seems to be to short bank stocks and buy AAPL, FOSL, CMG, PNRA, etc.

SheepDog-One's picture

The Bernank is looking on in horror? What happened to him going down as the greatest ever in history?

Dirtt's picture

7 come 11.

Roll the dice again Ben.

JW n FL's picture


Israeli navy attacks intl. monitoring vessel in Gaza


Sun Jul 17, 2011 11:56PM

The USS Liberty incident was an attack on a U.S. Navy intelligence ship, USS Liberty, in international waters about 12.5 nautical miles (23 km) from the coast of the Sinai Peninsula, north of El Arish, by Israeli fighter planes and torpedo boats on June 8, 1967.


So! Let me Guess! Because Israel Behaves this way! I am a Nazi and its all my fault, right? Sure it is! Keep Up the GREAT WORK Israel!! Maybe you can kill a Lil Girl AGAIN! NEVER!! FORGET!!!

gmrpeabody's picture

I thought we were talking about bearish charts.

JW n FL's picture

I am talking about the Israelis State that gives more Money to the United States Government than ALL of the Financial Sector Combined in Multiples!


You want Bearish Charts? wait until Israel drags us (The U.S.) into a War! or you can go with the Broken Window Hypothesis.

lieutenantjohnchard's picture

my vote for the 5th chart is the one comparing jpm $39.35 versus silver $40.50. i like that chart.

fuu's picture

Keep waiting for the beat down. I would have to go back but I think they were under about a week last time before the 5x margin hike in days bs happened.


jesus BAC is almost at par with SVU.


And all the crazies are out today which is a good sign of distraction/turfing.

Eric Cartman's picture

I stopped reading after I noticed he used 3 indicators to identfy divergence. That is just paranoia. 

newstreet's picture

If it were only this easy.


Carthago delenda est.

Saxxon's picture

Israel/Iran is another false flag and affords B.O. another Hands-Across-The-Water shot at looking like a peacemaker.

Oh; and The Ceiling will be raised. 

Batten down for 500+ on the ol' DOW (from here) this week.

slaughterer's picture

The ceiling needs to be raised with substantial cuts in the government's budget.  If there are no substantial cuts, then Moody's and S&P will downgrade US debt one level even with a debt ceiling raise. 

Tense INDIAN's picture

He forgot to GIVE the SnP chart ....I may help here a bit ....After a long time ...looking at the SnP charts ...hope this helps...:::

SnP 500

gmrpeabody's picture

It really doesn't look broken..., YET!