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How To Escape From America, and Where to Go

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Yesterday the stock market had a great day, breaking above its 200 day moving average. This is a bullish sign. However, it’s too early to tell if stocks will continue to move higher in the next few weeks.

As you can see in the chart below, the equity index has crossed above that important moving average a few times last year, but failed to hold above it. The moving average is now around 1,260. Let’s see if the index can hold above that level.

The chart also shows the index remains in a big consolidation pattern, moving sideways. It’s a massive triangle that will have important implications, once there’s a breakout. The real test for the S&P 500 seats around 1,300. It needs to break above that level to make the bulls’ case valid.

If the index breaks that triangle to the downside, it will be a sign the bears have taken control. The market then will have the potential to test last year’s low levels.

For the currency market, it’s important to watch what is going on with the S&P 500 because many currencies, such as the Mexican peso and the Australian dollar, tend to follow that index.

If the equity index breaks to the downside, it will be a good time to buy the dollar against those currencies. If it breaks to the upside, it will be a good time to buy those currencies against the dollar.

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