Dollar Breakout
RLT Newsletter
The market recovered on Thursday from Wednesday’s FOMC-induced selloff, with technology and semiconductors leading the way. QQQ managed to push back above Wednesday’s candle, while SPY remained inside Thursday’s range. DIA, however, continued to weaken and actually closed lower, extending the selling pressure that began on Wednesday.
I discussed the DIA versus SPY divergence pattern on Wednesday, a signal that has consistently led to pullbacks of 4.5% or more. So far, that setup appears to be playing out once again. My stops on the DIA short are straightforward. If SPY pushes to a new all-time high, the divergence is effectively negated. Alternatively, if DIA breaks above Thursday’s high, I will exit the position. Until then, I plan to hold it as a hedge against the downside risk and choppy price action that still seems likely ahead.
DIA Daily Chart
The DXY Breakout
One of the more important developments last week came from the DXY. On Thursday, the dollar broke out decisively above a year-long base, closing above a major resistance level that has capped price for more than twelve months. If this breakout holds and DXY remains above 100, it could become a significant headwind for risk assets including stocks and Bitcoin.
Bitcoin has not participated in the 2026 equity bull market. Instead, it has remained in a bear market since topping in October 2025. I have maintained a bearish stance on Bitcoin since November 2025 when it broke below the 120-day SMA on the 3-day chart. Since then, the trend has remained decisively lower.
One of the signals I was watching during Bitcoin’s topping process was the potential bottoming pattern in DXY. While DXY spent months chopping sideways, Bitcoin steadily moved lower. If the dollar now begins a sustained move higher, it would not be unreasonable to expect another significant leg down in Bitcoin that ultimately carries it into my primary target zone near $38,000.
For now, stocks appear unconcerned with the dollar’s strength because enthusiasm surrounding A.I. technology remains extremely strong. However, if DXY continues to trend higher, it could eventually become a headwind for equities as well. Historically, a sustained DXY above 100 has not been friendly to risk assets. When QQQ peaked in March 2000, DXY was just beginning a larger breakout above 100. We also saw DXY bottom in 2021 before breaking above 100 in 2022, a move that coincided with a 37% decline in QQQ.
History suggests a strengthening dollar has often created challenges for growth stocks. Given how extended many technology names have become, particularly the memory stocks, a period of consolidation or correction would not be surprising.
DXY 3 Day Chart
MU Earnings
MU has been one of the market leaders throughout the year and one of the biggest beneficiaries of the current technology spending cycle. It reports earnings on Wednesday, and both the report and the market’s reaction to it will be extremely important. Fundamentally, the company remains very well positioned. Technically, however, the chart has become extremely stretched. That does not mean it cannot continue moving higher, but I am watching closely for signs that a larger retest may finally be approaching.
MU has now printed its third significant bearish divergence on the daily chart. Despite those warnings, remaining bullish has been the only profitable strategy so far. The stock regularly produces 10% up days, making shorting it simply because it appears extended a dangerous game. Earnings on Wednesday will answer the question: another leg higher, a short-term pullback, or the beginning of a larger correction that ultimately becomes an excellent long-term buying opportunity.
MU 3 Day Chart
SOFI Basing
One chart that has caught my attention right now is SOFI. For much of the last year, SOFI traded almost in lockstep with HOOD. HOOD recently broke out and delivered a strong move higher, rewarding traders who participated in several of the swing setups I highlighted. SOFI may now be setting up for a similar move.
The stock recently reclaimed its 100-week SMA after spending months below it following the April earnings gap down. During that period, it consolidated beneath the moving average before eventually closing above the large bearish earnings candle, creating a volume trap. Since then, SOFI filled its earnings gap, reclaimed the 100-week SMA, and is now battling with the 100-day SMA.
If it can reclaim and hold the 100-day SMA, a move toward $20 and potentially $22 near the 200-day SMA looks very possible. As long as SOFI remains above the 100-week SMA and the key pivot at $15.64, I like it as an accumulation candidate with the potential for a slow, steady grind higher. A break below $15.64 would invalidate the bullish thesis and force a reassessment of the chart.
SOFI Daily Chart
Perfect timing