The usually wise Frank Barbera makes a few noteworthy points in the snippet below from his latest report.

Regards - VHF

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BY FRANK BARBERA, CMT

08.26.2008

...Perhaps one of the most telling indications of the fleeting nature of the Dollar Index rally is the action on a gauge called “%B.” Developed by John Bollinger, this gauge uses price action in relation to long term trading bands to determine whether a given market is relatively high or relatively low. In the case of the Dollar Index, the recent readings on %B are among the most overbought values ever seen. Even more telling is that from the oversold extreme low seen on November 8th, 2007 to the recent overbought extreme high seen on Monday, August 18th, the NET gain for the Dollar Index from low oversold extreme to overbought high was a move from 75.43 to a close of 77.15, or 172 basis points or 2.28%. Given that the rally retraced so little of the prior decline and is now historically overbought, this kind of sub-par performance is almost always an indication that a major downside reversal is imminent, and that new lower lows lie just ahead.

Below: Dollar Index with long term %B medium term Overbought-Oversold Gauge.