Chart Courtesy of StockCharts.com

The U.S. Dollar had a banner day on Thursday, while commodities fell hard. This was clear in the action of the DB Commodities ETF (NYSE: DBC) and the U.S. Dollar Bull ETF (NYSE: UUP).



Chart Courtesy of StockCharts.com



An old relationship in the realm of technical analysis is alive and well. When the dollar strengthens, commodities weaken. What's most important about the trend right now is that both sectors have crossed long time trend lines, the 200-day moving average.

The 200-day moving average is the line between bull and bear markets, and the dollar is now technically in a bull market while commodities, as a whole measured by an indexed portfolio such as DBC are in a bear market.

The dollar is strengthening due to the sovereign debt fears that are rising in Europe, as well as fears that China is the next bubble to implode. There is also the notion that the U.S. government is in gridlock, which means that U.S. taxes will rise, theoretically helping to reduce the U.S. budget deficit.

The bottom line, though, is that a long term relationship has been reversed with the dollar gaining on commodities.

That could be short lived, or it could be in place for some time. The employment report, released this morning, and developments in Washington and the economy could have significant influence on this relationship, and could even reverse it. But all we can do is trade what's clear in the charts now.

Dr. Duarte owns shares in UUP.

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