DXY’s Warning

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DXY tagged our 89.88 target overnight, capping off a nice short that dates back to March 18 [see: Currencies to the Rescue.]With so many other instruments watching its every move, we’ll dig into whether the correction might have run its course and what it means for equities.

continued for members…A reminder – DXY has pushed below its white channel midline. So, it’s already in a precarious position.

If the midline doesn’t hold, the next moves lower could be extreme. But, check out USDJPY and EURUSD – which are very close to targets but don’t appear to be done just yet. USDJPY looks like it could go at least a little lower (dollar weakness/yen strength.)

And, EURUSD looks like it could go a little higher (dollar weakness, euro strength.) SI and GC also seem to have a little further to go before running into trouble: SI at its white midline around 27.25 and GC anywhere between her and its 1923 former high. And, BTC has broken out of its rising pink channel to test the blue channel top and approach the 1.272 Fib at 24,166 right on schedule. Combined with VIX’s 10/20 cross, this suggests to me that stocks are fairly likely to top out today.SPX is due to tag its 1.272 on the open. ES is right behind it.Though CL has a little to go before hitting its 1.618 and channel top at 50-50.22… …RB is very close to closing its gap.And, our 2s10s model still suggests a meaningful equity correction. If DXY bounces here, it strongly suggests a downturn in the 10Y which would suggest a breakdown in the 2s10s.This bolsters the bear case for stocks. If you must stay long, at least consider some protection. Otherwise, short stocks, CL and RB and long ZN, DXY and VIX. USDJPY and EURUSD should be close to reversals.

As a reminder, when we get significant reversals at 1.272 Fib extensions, a normal pullback is to the .618. In this case, that would be SPX 2934, a 21% drop from 3725.

I’m not suggesting that a 20% is coming. The Fed has made it clear they’re willing to go all out to prevent such a drop. A move through ES 3730 would be a breakout and should inform any stops (there’s always the possibility ES pops up to tag its own 1.272 at 3730 after hours.)

But, it’s important to know what the potential is, especially if SPX takes out some of the major support like the SMA200 (currently at 3186) or the 2.618 Fib at 3047.

I’ll post more after the close.