US dollar (DXY) turned bullish; Treasury bonds (TLT) remains bearish; Gold (GLD) remains to be seen, scope for downside; S&P monthly overbought

January 2^nd, 1^st trading day of 2014:

It seems to be a typical risk off day. Fundamentally it was the Manufacturing PMI from China to the UK and the Eurozone that were all a tad softer than expected. Technically, it was due for a reversal in all these markets.

SP was above all moving averages and achieved a monthly RSI at 77.6. The last two times when SP monthly RSI was at such high levels were 1999 and 2007 when the equity market peaked a year later. So far there is no obvious divergence yet in SP RSI on the daily, weekly and monthly time frames. Therefore, The current pullback remains to be bought. The 20 day MA at 1809 and 50 day MA at 1790 are support levels to be watched.

On the reverse side, TLT bounced after making a new low at 101.17. So far the monthly RSI is at 38, not oversold yet. Based on the head-&-shoulders projection, long-term bull trendline support, and the 1.618x extension target (as shown on the chart), the 95/94 area should be the logical target. In addition, the falling 50 day MA is about to cross below 200 day MA possibly around 109 which should cap near term bounces.

GLD also stalled at the 115.50 area which is near the 61.8% retracement of the November 2008/September 2011 (68.81/185.85) rise. On the daily chart, a minor double bottom (formed over the last 8 days) was confirmed, projecting upside towards 121.00 near the falling 50 day MA which may cap. If gold could break through the 50 day MA resistance, then we could see gold challenge the falling 200 day MA at 130. So far what is missing is volume increase on the upside.

US dollar index (DXY) has been holding above the 79/80 key support zone (including 2-year trendline support/200 week MA) as shown on the weekly chart. On the daily chart, DXY is breaking out of 7-week falling wedge resistance, bolstering for the 200 day MA at 81.50.

Bullish US dollar can be headwinds for the commodities in general and the emerging markets as well. Until we see the treasury yields show signs of peaking (e.g., TLT stops going down), US dollar index would trend higher to reflect the higher yields. The US stocks could see new highs before peaking for the current cycle.