As expected, the Shanghai Composite index encountered pocket resistance on the weekly chart.  Despite major news outlets decrying the 20% drop as the beginning of a bear market for China, it is actually a healthy pullback after a total gain of 109% from the November lows.  This pullback can be considered the handle of larger cup & handle formation – this setup was also encountered in the March 2009 lows.

Examining the daily chart, it appears that 2,750 will be a very crucial technical level to establish itself as a short-term floor.  This is where pocket support should come into play on the weekly time frame, and it a test of the rising trend line from the 2009 January – March spike lows.  It is also a 50% Fibonacci retrace of the advance from the March low.

The dollar got a bounce exactly where expected.  Pixel perfect.  Along with foreign exchange gyrations, the markets where subjected to the whim of options expiration and quadruple witching.  Max-Pain is the order of the day.

This is a multi-year pattern developing in the dollar – a cup & handle, or inverse head & shoulders.  The key to this setup is symmetry – notice how each pullback this past year corresponds with low marks in the years 2004-2005.  Much like the yen surprised every trader banking on a cheap source of fund borrowing, so too the dollar is in the beginning stages of a  move higher, especially if there is a breakout above the rim now clearly defined around 90.  This area of ‘pocket resistance’ is a key pivot in the months ahead.