PowerShares DB U.S. Dollar Index Bullish Fund (UUP)
Some of the very short-term technical indicators for UUP are signaling a dollar will soon pullback. A U.S. dollar rally was bad for stocks in September, but now stocks look poised to rally. The conditions in the market during the sell-off, a strong dollar, weak stocks and strong bonds, appears to have concluded. It should be expected the dollar to retreat given its significant run-up over the past few months.
iShares Russell 2000 (IWM)
Below is a chart that traders are looking at as trading gets underway on Wednesday. The Russell 2000 Index has retraced 50 percent of its decline. Short-term traders look to levels such as a 50 percent retracement as a test of the market's strength. The PowerShares QQQ (NASDAQ:QQQ) has already pushed above 50 percent and a move higher by IWM would be bullish for the week ahead.
iShares Barclays 20+ Year Treasury (TLT)
Bonds are painting a bullish picture for stocks, which can be seen in the candlestick chart for TLT. The thin line above and below the thicker bars indicates the intraday high and low for the stock. Typically, that long spike represents exhaustion of a move, caused by investor sentiment reaching an extreme. On the upside, investors panic buy as the price runs away from them, and on the downside, investors give in to the selling and dump at a loss for fear of greater losses. As can be seen in the chart of SPDR S&P 500 (NYSEARCA:SPY), a similar move was also seen in stocks.
iShares iBoxx High Yield Corporate Bond (HYG)
Another important fund to watch this week is HYG, as high yield bonds have rebounded. The chart below is adjusted for dividends, but if HYG were to rally as strongly as it did last week, it could push to a new high for the year even if we ignore dividends. Such a move would be very bullish for the stock market.
iShares MSCI Emerging Markets (EEM)
Emerging markets have not bounced along with the U.S. and developed markets. After a politically driven bounce in Brazilian shares, that market has turned lower. Chinese shares have also struggled to rally. Indian shares have been holding for several months now, while Russian shares have also failed to bounce. Since Brazil and Russia have large exposure to energy, and oil prices have stayed low, this failure to bounce is not a surprise. Since oil is likely to bounce soon, emerging markets may finally join in the rally.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.