Mon 8/6/12. Something's gotta give.

SPX is in fully-bullish alignment in terms of price above a rising 20dSMA, 50dSMA and 200dSMA with higher highs and higher lows. The US Dollar has largely been in the same bullish alignment since early May as SPX has vascillated between 1267 and 1422. It is extremely unlikely that both will break upward, so something's gotta give.

When looking at weekly candles for the last few years, USD looks a little healthier in terms of rising moving averages and trend lines but less healthy in terms of negative divergences. USD set important highs in 2010, 2011 and 2012 at $81.44, 81.32 and 81.77 respectively. There were also 2 previous pivots at $81-82 in 2009 and 2010. Since USD broke above $82 in May 2012, it pierced key pivot highs at $83-84 established in 2009 and 2010 and then fell back to $81.16 in June and $82.06 today. Pull up a weekly chart. It is quite obvious that USD is backtesting what was previously 3-year resistance at $81-82 after bumping into the next resistance at $83-84 (next is $87-89). In order to regain fully-bullish alignment, USD cannot afford to drop much more in terms of price and time but there is a little room.

SPX is approaching its 1422 highs diverging against risk markets which are hitting their own resistance. It seems unlikely that traders will enthusiastically buy another large dip in August with the recent economic news, Fed backdrop and smaller reward/risk ratio between 1267 and 1422. There is a bit of a vacuum until the Jackson Hole speech at the end of August and the next big economic data and Fed meeting and EU news in early-to-mid September. In terms of patterns, we could possibly be completing a triple zigzag from 1267 or possibly a double zigzag with EDT. And, if SPX is forming a larger EDT from 1011 to complete wave C of an ABC from 667 in March 2009 as I've suggested as a possibility a few times, then wave 1 took 10 months (1011-->1371), wave 2 took 5 months (1371-->1075) and wave 3 took 6 months (1075-->1422). If wave 4 ended at 1267, then it only lasted 2 months and looked very impulsive which would be odd. The end of August would be 5 months and match wave 4 in time. Down waves tend to go faster than up waves. If the Fed or ECB acts strongly by September, we could then get a 2-6 month uptrend into late 2012 or early 2013 to 1440-1500. If Germany rejects new action and the Fed does not act by September, then the bear market will become official. My suspicion is that the stock market will break 1267 in late August or early September giving central banks an excuse to prop things up through the US elections and then the election results will determine how health care and the fiscal cliff are handled which will shape stock markets for a few months. To determine whether SPX will seriously correct or not in August, I recommend watching USD $81-82 and SPX 1359-1369 for support or failure. Good luck.