September 1, 2010 5:00pm ET

The rebound today broke up through the steep descending trend and stopped at the 50-day moving average. There is minor resistance at the recent high as well. If either of these levels hold, it will signal another move down.

The RSI is at 50, a sign of indecision. The MACD turned down through its 9-day moving average giving a sell sign. If it rises from here through the signal line it is a buy signal. On the other hand if it remains below its 9-day moving average, the market is trending down. The Slow Stochastic fell through 80 giving a sell sign.

The slope of the 150-day moving average is now negative, indicating the S&P 500 is trending down.

The formation of the second right shoulder is complete, indicating we should see the market move down through support at the 1,020. Like many patterns this is only a probability. According to Encyclopedia of Chart Patterns (Wiley Trading) by Thomas N. Bulkowski, the Complex Head-and-Shoulders top has a failure rate of 8% with 67% meeting the expected price target using the measured rule (about 900 on the S&P 500). If this pattern proves to be true, we will see the market trend down over the next few weeks and into October.

Link to current version of the chart prices:  S&P 500 6-month chart.

On the 60-minute chart of the S&P 500, index rebounded right on cue at support of the rising trend.

The RSI is above 50, a sign of an up trend. The MACD turned up through its 9-hour moving average, a buy sign. The Slow Stochastic rose through 20 giving a buy sign. Now it is above 80 where it will turn down giving a sell sign.

As expected the market rebounded. We might see it rise to the 1,100 area before turning back down.

Link to current version of 60-minute S&P 500 chart, requires a subscription to stockcharts.com basic service. Trading Online Markets LLC does not receive any compensation from stockcharts.com.

The U.S. dollar had fallen precipitously over the last two months as investors worry the United States economy is weaker than originally thought. Since then it has rebounded, having risen through the descending trend. The 50-day moving average and 83.50 area offer resistance. So far, they have held.

The support at the 81 area and the 200-day moving average held. Major resistance remains at the recent high at 88.50 level.

The RSI is above 50, a sign of an up trend. The MACD turned up through its 9-day moving average giving a buy sign. The Slow Stochastic rose through 20 giving a buy sign.

After rebounding from a significant sell-off the dollar is trying to form a base. Base forming can take weeks to months to complete.

Longer term, if the U.S. economy continues to recover and achieves a 2.5 to 3.0 percent growth rate in 2010, it will be growing faster than the developing countries in Europe and Japan. As a result, investors will look to move some their capital to the U.S. This will encourage the dollar to rally relative to the Euro and the Yen.

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