August 31st 2013: If the US dollar goes higher, where does everything else go?

Hint:  Lower.

Once again, there's not a shortage of things to talk about this week.  In no particular order, we could talk about:

1) Small-caps breaking down  ($SML)
2) Mid-caps breaking down ($MID)
3) Europe rolling over hard after displaying RS
4) The big moves in the $VIX and loosely-related ETF cousins (VXX, XIV)
5) The persistent weakness in the $INDU's and $TRAN
6) The stubborn stickiness of the $NDX (QQQ) and its resistance to rolling over

But I don't have time to write 6 additional blog posts, so I'm just going to pick the most important one:  $USD/UUP

Let's take UUP as a proxy for the $USD since I can easily get volume and it's easier to see the trends.

On the bull side of the ledger, we have:
1) Higher low and higher high on the daily chart of UUP
2) Down-trend appears broken on the weekly chart with a close above previous week's high @ 22.07
3) Elder Impulse Bars turned blue (neutral) and stayed blue after weeks of being red.
4) Price closed above 5-week EMA
5) FORCE(2) is green and trending up
6) FORCE(2) on the downside was light as price was testing previous lows @ 21.82-22
7) Price bounced off clear support at 21.82-22

On the bear side, we have:
1) Weak volume
2) Price is below 10w SMA
3) Bearish 5w EMA x 10w SMA cross still in play
4) Price is below Chandelier Stop line (10,2)

I can sort of wave away the downside arguments as being symptomatic of being early in the trade.  If the UUP starts ripping higher, I would expect the other indicators to catch up.  If we break 21.82, then clearly something went wrong with my thesis.

Overall, the bullish aspects of a UUP long trade have much more appeal and we could easily see the top of the recent range at 22.94.  We've been in a range of 21.50 to 23 for almost 2 years on the UUP, so a move higher within that range is certainly within the realm of possibilities.  In fact, you could argue that it's just normal chop within a box (range).

So, what does a $1.50 pop in UUP mean for the rest of the world?  My take is that it means a great deal for commodities, stocks - and emerging markets specifically, and even the stubbornly sticky QQQ.

If you're only going to look at 1 chart every day, this would be a good one to watch.

Here's the chart:

For more charts and to see a disclaimer, please read my public charts at stockcharts.com:

http://stockcharts.com/public/1109955