As I often highlight, the stock market & Euro typically have a very tight positive correlation which can be view on the 15-minute chart below.
QQQ vs FXE 15m Jan 25
Recently, either QQQ (Nasdaq 100 ETF) hasn’t gotten the message that FXE (Euro ETN) is falling –OR– the other way around. Will the mean reversion that will likely occur soon result in FXE up or QQQ down? QQQ has negative divergences & overbought conditions although FXE has positive divergences while oversold on the same 15-minute time frame so the potential for QQQ down while the Euro rises is certainly one possibility.
Bottom line: The longer these two highly correlated assets diverge, the more pronounce the mean reversion will likely be once it comes. Based on the technical posture of the stock market, as well as the Magnificent 5 (more on that later but essentially that’s my new name for the group of market leaders FKA the ‘Magnificent 7’ with AMZN & TSLA no longer part of that elite club), it appears that QQQ down will be the most likely scenario at this time although we need a sell signal for an objective short entry, the first of which would come on a solid break & (60-min) close below the rising wedge pattern (uptrend line) on the 15-minute chart above.