The last time we looked at the U.S. Dollar Index (USD) in late January, we figured the buck was oversold and due for a bounce.

The index was approaching support. The “short dollar” trade was too popular. And, since the financial markets rarely reward popularity, it seemed like the buck was near a bottom.

The dollar has enjoyed a nice bounce since then. Take a look…

You can see how the index held support at about the 88 level. That support line goes all the way back to late 2014. It was unlikely to be broken on the first attempt. So, it was reasonable to be looking for at least a short-term bounce off of that level.

Notice, though, that there was no positive divergence on the MACD momentum indicator at the low point. In other words, as the dollar was falling, the MACD was falling right along with it.

That tells us the downtrend is strong and likely to continue. Any bounce off of support would be short-term only. There’s more downside ahead.

So, now that the dollar has bounced and has relieved the short-term oversold conditions we noted back in late January, we can start looking for the downtrend to resume.

The buck still has a little room to work higher over the next few days. USD could bounce up to its former support line (now resistance) just above 91. But it’s not likely to run much higher than that.

And the next push lower might just be forceful enough to break below support at 88. If that happens, then look out below. The next support line is all the way down at 85.

Best regards and good trading,

Jeff Clark

Reader Mailbag

For today, readers write in about the action in gold stocks, Jeff’s recent blog activity, and another story of an option trade order gone awry…

Thanks for your daily insights. Would love your current thoughts on GDX/Gold.

– Tanner

You’ve been quiet on gold miners today – have any thoughts? Quite a bit of action there.

– Cal

Any thoughts on where precious metals are headed short-term and intermediate?

– Clint

Thanks for writing in, all. You can find Jeff’s thoughts on yesterday’s gold action right here.

Your Feb 12th late-night thoughts embody the wisdom of ages. There are very few constants in life but the journey is best traveled with wisdom.

Keep your beacon shining, we need it.

– Harilal

I read everything you put out and as a general trend figure you’re right on but during the last week of this market turmoil I finally sold most of what I had invested and am now just sitting on it. The peace of mind – for the moment – is great! I’ve started paying closer attention to commodities.

– James

In Tuesday’s 11 a.m. update on Delta Direct, Jeff indicated that market action is constructive for  the next leg up. I am somewhat puzzled by that.

Of all the suspects, the main one for the market’s selloff in the past week is the rising interest rate due to variety of factors coming together. That’s not going to change.

As we speak, the 10-year yield is about 2.85% – really the same as just before market started its descent. I would have argued that the sideways action so far today is “constructive” if you are bearish, working off oversold conditions in preparation for the next leg down. I guess only time will tell.

– Stephen

We appreciate your note, Stephen. Yesterday after market close, Jeff wrote in Delta Direct elaborating on the market’s constructive action. You can find that blog post right here.

I can appreciate the predicament Lawrence was in. Years ago I was in a hurry to catch a plane but wanted to enter a trade. Using my smartphone I entered the option call with Scottrade. In my hurry I entered the limit price in the volume box.

Fortunately my local Scottrade office called and asked if I really wanted to buy a thousand-plus contracts. They cancelled the order, but lord that still scares me to this day. I double check all orders and will not enter an order if I am in a hurry. Big shout-out to Scottrade and their brokers.

– Glenn

As always, don’t hesitate to write to us with your trading stories, experiences, questions, and suggestions. You can do so right here.