The US Dollar Index continues its "safe-haven" bid as global equity markets remain under pressure. On Friday, Citigroup announced a plan to convert preferred shares into common stock in an attempt to boost it's tangible capital ratio. Citi's shares plunged due to the dillution of shareholder equity, causing bank stocks and equity markets worldwide to fall. The S&P 500 probed below it's November lows, enabling the Dollar Index to probe it's corresponding November high. This tight correlation has remained strong and is no suprise that both metrics are probing key levels. While it may be premature to call a double bottom for the S&P and a double top for the US Dollar Index, there is a possibility that history could repeat itself . A hint that the Greenback may be distributing or topping, is the formation of a rising wedge or an ending diagonal. This typically bearish pattern often occurs in conjunction with a "throw over" or a false-break of a previous high or low. This occurred to a smaller degree in November when the US Index approached the October high within an ending diagonal pattern, only to marginally break it. The net result was a "throw over" that marked a double top which preceded a dramatic reversal. For this to happen again, the stock market will need to recover from a capitulation type sell-off similarly seen in the November low. Unfortunately, this type of price-action in the equity market has not happened recently. Moreover, the S&P closed February below a key monthly pivot, suggesting possible weakness towards the 700 handle, where a key long-term bull trendline lies. This would equate to Dollar strength towards 90.00. If, however, the S&P can recover and convincingly trade above the November low of 740.61, then the false-break scenario becomes increasingly more likely.
