Sideways Stock Market, Stronger Dollar

The U.S equity indices pretty much stalled this past week. Although this week included some supposedly meaningful fundamental economic releases, you would never know it by the very narrow price range (1302.49 to 12.89.49) exhibited by the S&P 500 (SPX) for the past five days!

At the close of trading on Friday, the SPX at 1295 was about 7.50 points from the weekly high, and about 5.50 points from the low, which means that within the narrow range the price structure circled the mid-point at Friday's close!

If we were to construe that there is a lack of selling pressure, then we should expect higher prices to seek out a level that WILL elicit sellers -- and right now that target zone is 1310/13.

Unless some "event" triggers an exodus from the long side, my work points still higher in the upcoming days prior to the next rollover.

While the equity markets went sideways, the U.S. dollar curiously gained ground this week against the euro.

Since its upside breakout at 1.2880 failed on Monday, the euro has managed to retreat from 1.2940 to 1.2750, despite relatively weak U.S. economic data on Home Sales and Durable Goods (yes, I am scratching my head, too!).

Obviously, there is some underlying issue that currently is outweighing the "headlines" that the U.S. economy has slowed (or worse), and/or that the Bernanke Fed will not raise rates in the near future.

Is inflation really that much of a concern right here -- that the FX market is positioning for the end of the FOMC "pause" period? Certainly, bond traders do not seem to be in agreement with their FX brethren, do they?

From a technical perspective, my work indicates that the upmove from the 7/19 low at 1.2460 to 1.2940 exhibits bullish form and ended the first phase of a new upleg within the larger bull phase from last November's low at 1.1640. If that proves correct, then only a break below 1.2460 will wreck the bullish big picture for the euro.

From a nearer-term perspective, I now see the euro weakness as a minor pullback into the 1.27 to 1.2650 area (maximum), prior to the emergence of the next upleg, which projects to the 1.33 area.

Those wanting to play the euro from the equity side may want to look at the Euro Currency Trust (FXE), an exchange-traded fund for the euro.

With the foregoing in mind, we have to allow some additional downside latitude for gold prices and the streetTRACKS Gold Shares (GLD) if they mimic the directional trading of the euro in the upcoming hours/days.

Mike Paulenoff is author of the MPTrader.com ETF Trading Diary (www.mptrader.com), a real-time diary of his technical analysis on equity markets, futures, metals, currencies and Treasuries.