Market Commentary:

The stock market managed to recoup some of what was lost yesterday, as a dip in the dollar helped to ramp up the market again as the direction in the dollar is largely the single largest determinant of what the stock market will do from one day to the next.

I think this is largely a technical slugfest being waged on all financial fronts, but the dollar is still the main show and what it does next week will determine how the market plays out and that’s what makes this a rather tough call.

The largest of all markets is the currency market, so it is here that traders are focused to make decisions for nearly all the markets.

Notice from this chart the US dollar is short term oversold, attempting to construct a double bottom. Notice, too the rising RSI values. This would suggest the dollar should try and advance next week.

Conversely, when we look at the stock market which is trading inversely to the US dollar it appears to be in various stages of topping patterns. The S&P 500 and the Nasdaq Composite Indexes are forming a double top. The Wilshire 5000 looks to be forming a “head and shoulders” formation, suggesting a broad market topping pattern is developing.

As you can see from the above chart, even though the markets put in a positive advance from a weekly perspective the pattern that has developed over the last three days still keeps a head and shoulders correction pattern in play.

The Russell 2000 index, which tracks the small cap stocks, is even in a more advance stage of deterioration, as seen below:

As you can see the small cap index (Russell 2000) has already put in a double top at the last short cycle high and has now produced a lower low and a lower high on the daily cycles, with this latest short cycle advance clearly nowhere near its former high. Even more significant, the Russell 2000 is now struggling below its 50-day moving averages and curling downward.

Right now there aren’t a lot of choices that are attractive. Gold, energy and the commodity driven stock market all look top heavy here.

Ford is coming out with a new car program for 2010 that has everyone excited about. You should know about this.

Ford Unveils New Car For Cash-Strapped Buyers: The 1993 Taurus

Is this what Ford is doing with the clunkers that got turned in for cash this summer? Novel idea, huh?

Have a great weekend.