US Dollar Outlook, Week Ending 11/3

I'm making a post strictly for the U.S. Dollar this coming week because it seems we're approaching a possible inflection point for the currency. Technical indicators suggesting the dollar's recent rally is looking a bit hot, combined with a week of important economic data, suggest a selling opportunity for the dollar may be imminent.

Source: investing.com

A look at movements in the dollar index futures suggest some further strengthening in the currency is seen for the first day of the workweek, with Asian/Pacific trading starting to rev up as I type this (8:10pm Central Time). Since a relative nadir on October 11th, the dollar index has risen by nearly two index points, from 92.83 to 94.75. The biggest day of gains came on October 26th, with a jump of 1.01 index points. Needless to say, we've been in a bit of an uptrend over the last couple of weeks.

Source: investing.com

From a technical vantage point, the recent dollar rally has flipped the script from what we saw over the summer and earlier this fall, when the dollar was encountering one of its weakest periods in years. Both the pound and euro are starting to look a little too weak against the dollar right now, especially with EUR/USD dipping just barely below 1.16 in early trading to start this workweek.

Source: tradingeconomics.com

In terms of economic data, this week is looking to be a pretty significant one for the U.S. Seen among the high-impact data releases this coming week are a FOMC decision on Wednesday, where expectations are for the benchmark federal funds rate to be held steady at a range of 1.00% to 1.25%.

Source: CME Group

The big question for this meeting is going to be how policymakers view the likelihood of a December rate hike. As shown to the right, market participants view the probability of a rate hike at this week's FOMC meeting as practically nonexistent, but are pricing in a 97.2% chance of a 25 basis point hike in December. In other words, markets are viewing a December rate hike as all but certain, which leaves little room for any big upside dollar moves from this meeting. Instead, any hint of a more dovish shift in FOMC thinking on a December rate hike could hit the dollar and put an end to this recent uptrend.

The Federal Reserve has indicated they are taking into account the behavior of financial markets in their decisions- of course, to what degree is uncertain, but I would be surprised if there was to be any dovish shift. By historical valuations, stocks are indeed expensive, and I personally see the Federal Reserve as willing to turn a blind eye towards soft inflation and hike rates once or twice more to keep a very strong labor market and a frothy stock market in check. This was put on display a bit in the last few months when traders saw Federal Reserve chair Janet Yellen point to a December rate hike as more likely than previously thought.

The fun doesn't stop there, however. The employment report hits the newswires on Friday, 11/3, and everyone will be watching both the unemployment numbers and any hints of wage gains. Similar to last month, job gains numbers (currently forecasted at or over 300,000 jobs) could be volatile as businesses likely bounced back strongly in October after being hit hard in September from two major hurricanes.
Since this could be another volatile report, it wouldn't surprise me to see this week's USD direction be established by the midweek FOMC meeting. As that last sentence implies, though, the potential volatility of the report could also be a scene-setter, but we'll have to wait and see if that actually ends up being the case.

To summarize:

- Watch the 11/1 FOMC report for hints of a more dovish approach to monetary policy- market participants are nearly fully pricing in a December rate hike and USD could become vulnerable in a change of thinking.
- The possibility of another NFP report missing or beating forecasts by a large margin, like last month, is a source of uncertainty and will likely help set the tone for the week's performance of the dollar.

Andrew

Crude Oil To Be Pressured; Gold On The Rise

It's looking like crude oil prices are positioned to take a fall in the short-term, while gold is aiming for further gains following post-election declines.

StockCharts.com

A look at the last six months for WTI shows a pretty good number of reasons to be bearish. Since about the beginning of December we've been in a bearish pennant, with resistance around $54 reached at the turn of the new year and support now around $52, built around short-term lows throughout the last two months. This pennant is outlined in thin black lines. Tuesday's trading brought us very near a breakout point lower, with session lows right on the line of support on that pennant. What really matters is where we close, though.

Speaking of closing prices, WTI managed to close a hair above the 50-day SMA, prominently shown on the right panel of the above image. As of this typing, crude oil futures for March delivery are down roughly 1.1% to $51.59 a barrel, not only below Tuesday's close but also below Tuesday's session lows. This bodes well for Wednesday being our breakout point lower below the 50-day SMA line and possibly breaking the pennant as well, barring any positive shocks/news.

StockCharts.com

While crude oil looks for a break lower, gold is slowly but surely regaining ground lost after the election, when risk-off was the status quo. With that risk-off sentiment now abating as the new administration starts off on some shaky footing in some cases, gold is back in the crosshairs of investors. Long-term resistance was broken initially on Monday's close, and confirmed by Tuesday's open and close above that black resistance line.

I'm personally expecting the 'Trump trade' to continue slowing as the honeymoon phase ends and investors realize that significant tax reform and fiscal policy changes will not be immediate. This seems like a good time to jump into gold, so long as the dollar rally continues to stall along with the general Trump trade/risk-off sentiment.

Andrew

Dollar Bulls Will Ride Again... If Not Now, Then Soon...

Dollar Bulls Will Ride Again... If Not Now, Then Soon...

MyFxBook

There's some shifting going on in the currency markets, especially in major currency pairs. The first image shows latest readings of the Euro (currency pair EUR/USD), which is currently in the retesting phase of a true 'head-and-shoulders' pattern. This pattern is identified by a rise in the value of a security, followed by a dip, followed by another rise, followed by another dip, and a final rise and a final dip to give the appearance of a head and two shoulders.
In the finance world, this is a 'bearish' pattern, a pattern that anticipates the value of the security will fall soon. The 'retesting' is shown right now, as we see the value of the security hovering just under that red line, called the 'neckline'. When this retesting is complete, which will happen soon, the Euro is expected to fall in value yet again, likely into the rest of January and February.

MyFxBook

The second image shows the value of the Yen (currency pair USD/JPY). Notice another neckline shown by that red line, but this time it is an INVERSE head-and-shoulders pattern. It's that head-and-shoulders pattern, but turned upside down. Similarly, instead of being 'bearish', this pattern is 'bullish', anticipating the value of the security will rise soon. Thus, the Yen is expected to decrease in value again in the near future.

Teletrader.com

It's no coincidence that these two things are happening at the same time. When the Euro and Yen both fall in value, as is projected to happen per this technical analysis, it's typically due to the U.S. Dollar strengthening. The third image (the Spot Dollar Index, symbol DXY) shows what may well be a very messy inverse head-and-shoulders pattern in the short term, using the same time intervals as the first two images, but again it's very messy. The messy quality of this pattern throws into question a strengthening dollar.

But this question exists only briefly.

In my fourth and final image, I show you what will be a news story for the next several years. We are currently going through, if not just exiting, the retesting phase of an inverse head-and-shoulders pattern in the Spot Dollar Index, but this time it's a 20-month-long pattern instead of just a couple of days, like the first three images.

Teletrader.com

It will be a consistent news story, because it could very well usher in the next recession. A stronger dollar for the long term is favored strongly by this technical analysis in the fourth image. While it increases purchasing power of the U.S. consumer, it will increasingly trim profits of multinational companies, especially those who make the majority of their revenue from other countries. Converting those currencies into a stronger US Dollar will take more of that country's currency to make 1 USD. Over time, that hurts companies' earnings, and by extent their stock prices.
The stronger dollar will force the Federal Reserve to hike overnight lending interest rates faster than they want to, something that will squeeze the bond bull market (which is already looking shaky post-election). For companies that have been living off of easy monetary policy put into place by the Fed since the Recession, this is a big threat. If it comes to fruition is another question and another story for another day, but the threats are very real.

To summarize:
1) Short-term weakening is expected for the Euro.
2) Short-term weakening is expected for the Yen.
3) Simultaneously, strengthening is expected for the U.S. Dollar.
4) Long-term, the U.S. Dollar is expected to strengthen, and may very well be the catalyst for the end of this already very-long economic expansion.

Andrew

Dow Jones Industrials Looking Distressed

I'm entering the fifth week of being contaminated by some kind of illness. This time, it's a nasty cold that developed last Thursday, and gave me a fever every day this past weekend, into Monday morning. That was accompanied by an incredibly sore throat, cough, and inordinate amounts of post-nasal drop. Not exactly the most fun way to spend a weekend, but thankfully it looks like things are turning a corner.
A handful of technical indicators on the Dow Jones Industrial Average are flashing warning signs that the market might be slightly distressed.

StockCharts.com

Attached above is a picture of the Dow Jones Industrials over the last six months, with the Average Directional Index (ADX) posted below. The +DI (Positive Directional Index) and -DI (Negative Directional Index) are superimposed on the ADX. In a nutshell, an ADX value over 20 generally indicates the presence of a trend in the market. Using the ADX alone, one can't determine the direction of the trend without looking at the values of the stock or index. The Directional Indexes help out by separating the ADX into positive and negative components. When the ADX exceeds 20 and the +DI is greater than the -DI, the trend of the security is generally positive/upward. Likewise, when the ADX exceeds 20 and the -DI value is greater than the +DI value, the trend of the security is generally negative/downward. This is by no means foolproof, but can be a guide to identifying trends and momentum, to some degree.
The ADX has been stuck in a pretty tight range since middle September, eyeballing it says it's hovering between roughly a 22-27 value window. Although the index has stagnated, it remains above 20, and therefore it is plausible that a trend still exists in the market. How can there be a trend if the Dow is stuck in a sideways pattern, you ask? Well, that's the gist of it. The trend is for the sideways pattern to continue, it would appear, as has been the case since last month. When taking into account the Directional indexes, we get a different story. Since mid/late August, the -DI line has consistently been above the +DI line, save for a brief come-together in late September. This was not a red flag back in August and early/mid September, because the ADX was below that key 20 threshold. However, it's been about a full month that the ADX has been above the 20 mark, and the -DI line has exceeded the +DI line. This has bearish implications for the Dow, and while there's nothing from this particular index screaming "correction" in the very near future, this indicator is raising the possibility that a correction cannot be ruled out down the road. A sideways trend with -DI exceeding +DI isn't something I'm fond of.

StockCharts.com

We now turn to another indicator, using the same 6-month timeframe as the ADX analysis. This time, we're looking at the Moving Average Convergence/Divergence Oscillator, or the MACD. This is a momentum oscillator, and will work in tandem with our ADX analysis above. The MACD, while a wonderful indicator, is also a rather complicated indicator to learn, given the number of crossover signals and such that can be learned. For this analysis, we will be focusing solely on the positivity or negativity of the MACD line itself (black line). In a nutshell, when the MACD value is positive, the momentum for a gain in the security is increasing. Taking this point further, a strongly positive MACD value can predict a strong upward breakout, whereas a weakly positive MACD value may anticipate weak gains or even stagnation. Similarly, when the MACD value is negative, the momentum for a loss in the security is increasing. A strongly negative MACD value may anticipate a large drop in the security's value, whereas a weakly negative MACD value may predict small losses or stagnation.
Something right off the bat that worries me is that the MACD has been negative since early September. This implies that there is more momentum for the index to lose value than to gain value. However, as we saw with the ADX, we are stuck in a rather small window, and in order for the MACD or ADX to succeed in anticipating this downward momentum, we need something to break out of the small window. Perhaps a series of worse-than-expected earnings, as we're in the thick of earnings season, or some other shock to the system. Those kinds of things can't really be anticipated, but when a breakout does occur, the MACD agrees that a downward movement is more likely than an upward movement.

Of course, we can't discuss stress in the market and not bring up everyone's favorite fear gauge.

StockCharts.com

The CBOE's Volatility Index, or VIX, is Wall Street's 'fear gauge', measuring volatility in the markets. When investors get jittery and uncertainty over the future increases, the VIX goes up. When markets are calm and the economy's looking good, the VIX goes down. As of the day this post was written (Tuesday), the VIX closed at 13.46, about where it's been since this past spring. That's something that I find a bit concerning.
As we described above, when volatility is low and investors are calm, the VIX is down. When you take into account that the 52-week range of the VIX currently stands at a high of 32.09 and a low of 11.02, you don't need a financial analyst to tell you that investors are pretty complacent with economic conditions right now. In some aspects, this is good; stock markets generally stay up during calm periods, enabling a prolonged, slow appreciation of capital if this calm period were to extend into the longer term. In other aspects, this is not good; investors are a little too complacent right now. The Federal Reserve is well on its way to boosting interest rates, either in its November or December meetings (likely the latter), and while experts are pricing this likelihood in, I don't believe the stock markets are doing the same. To some degree, this is warranted, as the FOMC has lost some credibility in the last few meetings after building up the case for a rate hike and then keeping rates steady. Despite this, I believe a correction will occur at some point if/when the markets realize that interest rates could very well rise in December. It shouldn't be a big correction, but at least a few days in the red ought to accurately price in a rate hike.

Another thing to discuss concerning the VIX is the Relative Strength Indicator, or RSI, placed above the VIX price chart. The RSI is an indicator of whether a security is overbought or underbought. Values above that dashed line at 70 indicate a security is overbought and a pullback in value can be expected soon. Similarly, values below the dashed line at 30 indicate the security is underbought, and a rise in value can be expected in the near future. The 'neutral' line is at 50, so anything between 50 and 70 generally is accurately priced but perhaps a bit too pricey, while anything between 30 and 50 is generally accurately priced but perhaps a bit too cheap for its real value. The VIX stands at about 46 at Tuesday's close, below the neutral line of 50 but not below the 'underbought' line of 30. In other words, volatility is about where it should be based on recent history, but might be just a bit too low. The RSI isn't perfect of course, but it's one of the more accurate technical indicators. Using the RSI, the VIX should be watched for a slight short-term boost.

Lastly, we apply the ADX we discussed earlier to the VIX. I'll save you the trouble of re-explaining the ADX and +/-DI, as it's all explained at the beginning of this post, so we'll just analyze the chart. The +DI line has exceeded the -DI line ever since the first few days of September, up until the last couple of days before this writing. Over the last few days, we've seen the -DI and +DI switching back and forth, seemingly fighting over which is more dominant. In a situation like this, I would call it neutral. But it doesn't really matter too much because the ADX itself (black line) is below that key 20 threshold, indicating there isn't really a trend present for the -DI and +DI lines to anticipate momentum. The momentum recently has been negative, and while that momentum and the trend are currently neutral, it could very well return and place continued upward pressure on the VIX.

Lastly, adding on to this theme of losing momentum and being stuck in a sideways pattern, let's check out just how low volatility has been, using numbers.

TradingViews

Shown above is the Dow Jones Industrials over the last year, with two price change windows on the right side of the chart. The larger window is where I measured the range in index values from highest close/open to lowest close/open. Since mid-August, a period of about 2 months, the Dow has varied by 626 points, or 3.36%. That's not much of a move at all, when looking at other 2-month periods over the last year. Applying the same method to the last month and a half, we get the Dow varying by 320 points, or 1.74%. These two price changes, particularly the window over the last month and a half, show this pattern we've been stuck in. The Dow Jones has been moving sideways on this chart, hence the 'sideways pattern' references. While there is downward pressure on stocks as we described above, until we get out of this pattern there's really nothing that can be done. Thus, we're waiting for an event that triggers either an upward breakout, such as a slew of much better-than-expected earnings from big companies, or a downward breakout, such as a series of poor earnings and a decrease in economic conditions. Time will tell just when this breakout happens, but until then, it's a waiting game. Which direction will it go? What will be the trigger for the breakout? Those two questions are at the forefront of my mind for the medium term.

Andrew

Testing Technical Analysis

I’ve finally managed to recover from the worst of my illnesses, after getting a fresh round of antibiotics to take care of something called ‘hemophilus influenzae’ that was making things pretty unbearable for a while. As I type this on this Wednesday, the third week anniversary of when I first went in to the doctor for an illness, I’m still stuck with a cold, but I am feeling far better than before.
The same cannot be said for financial markets in the last couple of days. Between the GBP/USD flash crash and continued weakness and stocks taking a nasty hit on Tuesday, I imagine there’s an abundance of Advil circulating around trading floors. If technical analysis is to be believed, painkillers could soon be flying off the shelves.

Bloomberg

Let me first assert that, as a college student, I’m not going to pretend like I know what I’m saying is completely accurate. I’m more or less learning as I go, and there’s bound to be times where I say one thing and the complete opposite happens. Caveats aside, above is a screenshot of the Dow Jones Industrial Average from Monday with a bearish pennant formation. This pennant is bearish as per the 2.88% contraction (flagpole) around the early part of September, which kicked off the pennant formation. The Dow fell 200 points on Tuesday, and as of this typing, is up about 34 points on this Wednesday at 18,163 points. Needless to say, Tuesday’s big drop was the downward breakout point for the Dow we were looking for. The drop came on the heels of uncertainty over the OPEC “deal”, a surging Dollar, and general anxiety over market volatility, certainly not helped by the Cable flash crash earlier. While conditions today (10/12) are slightly better and major indices are showing modest gains, DJIA remains below the pennant’s line of support. I’ll be watching carefully in coming days to see if this line of support is treated as a new line of resistance, or if markets rally and the pennant formation was likely a false alarm. Only time can tell.

Bloomberg

I’m not too convinced that this is just a flash in the pan with respect to the pennant formation yet. The S&P 500 has been exhibiting the same kind of bearish pennant formation as the Dow, with a drop of ~60-70 points at the flagpole. As a result of Tuesday’s sell-off, this pennant too was broken, and again I’m watching carefully to see if this holds and the index remains at subdued levels relative to what we saw in the pennant.

Bloomberg

The ‘kicker’ to me is a strong bullish pennant formation we saw in the VIX. This formed at the same time as the S&P 500 and Dow pennants, though this flagpole was bullish with a 71.47% gain in early September. Tuesday’s sell-off saw this pennant broken, and the VIX stands at 15.71 as of this typing (Wednesday). With the VIX pennant broken in an upward movement as expected, the idea that the bearish pennants in DJIA and SPX were valid gains traction. Again, it’ll take a couple more days to see if this is actually true, but things are certainly looking that way.

Ideally, I’ll be over this cold in the next couple days and I can finally have a day where I’m not sick with anything. That day should come very soon, but if technical analysis is to be believed, the same cannot be said for stocks.

Andrew

Everything That Buys Bonds Isn't Gold

I’ve been under the weather for the last two weeks as of this writing, contracting things from strep throat, to a common cold, to a finger infection, to pink eye, and now something with my tonsils. It’s been the less fun part of the school year to date, especially seeing how none of my friends have come up with any of the symptoms I’ve dealt with. The grass is always greener on the other side, as they say. The same can’t be said for gold, however.

TradingView

The big story on the Street from Tuesday came from the battering of Gold, as the price of this commodity fell by about $40 amidst a storm of news that didn’t bode well for the metal. This drop, the biggest in three years, was fueled in large part by hawkish comments from two Federal Reserve regional bank presidents; Loretta Mester of the Cleveland branch, and Jeffery Lacker of the Richmond branch. These comments fall in line with what we’ve seen other higher-ranking Fed officials say in recent weeks, that the economy is more-or-less primed for an interest rate hike. Reports also surface during the day Tuesday that the European Central Bank will aim to back off from its aggressive quantitative easing program, as the world of QE-eligible bonds becomes ever more scarce. This scarcity is in part due to investors unwilling to let go of bonds they already have, and central banks already owning a significant chunk of the sovereign bond market.
The Bank of Japan announced a ‘refocus’ of its QE program at its last meeting, which seemed to adjust their primary goal to maintaining the yield curve, in a sign of surrender that the effectiveness of quantitative easing is on the decline.

The combination of hawkish Fed presidents and signals that central banks may be less willing and/or less able to effectively utilize QE sent the dollar on a tear, with the Dollar Index Spot (DXY) jumping from 95.695 on October 3rd at the close to 96.169 on October 4th at the close. DXY is currently down slightly as I type this around noontime Wednesday, but the effects on gold remain.

As a mere college student, trying to learn as much as I can as things unfold, looking back on gold’s drop reveals that there were signals and reasons to be short gold. In addition to the stream of hawkish comments from Fed members in the last several weeks, technical analysis presented a big signal that gold was due to drop.

TradingView

We saw a flag back in Q1 and Q2 as gold steadily marched upward, and this flag broke off in late May on a downward breakout point. Gold rapidly gained value yet again in late June after Britain’s Leave vote in the referendum concerning membership in the European Union, as investors sought haven assets amidst the shock to the system (you’ll recall JPY also dropped below 100 yen to the dollar immediately after the referendum’s results were announced). From there, gold entered a Descending Triangle, which came to an abrupt end when the metal dropped $40 in its breakout point on Tuesday. Should gold follow the ‘typical’ path in the wake of a Descending Triangle, suppressed prices should continue over the next few weeks.
From there, I see two possible routes for Gold:

1) The Federal Reserve opts to hike benchmark interest rates in its November 1-2 meeting, favoring a relatively strong economy against uncertainty surrounding the presidential election. Gold suffers another drop as USD strengthens. Equities may also take a hit, save for financials, as I don’t believe the markets have fully priced in the potential for a November rate hike.

2) The Federal Reserve does not hike interest rates in its November meeting, citing uncertainty over the election, but strongly suggesting a December rate hike if data continues to support it (of course…). Gold jumps on a combination of election uncertainty and a weaker dollar, but is subject to a correction downward after the election, particularly if Clinton wins, as the markets appear to be heavily pricing in right now.

To summarize, Gold’s pullback was to be expected from a number of viewpoints, including via technical analysis and the continuation of hawkish Federal Reserve members. Other factors could have been used to identify a pullback, but as a college student without regular access to a Bloomberg, those two will have to suffice. Suppressed gold prices compared to the last 4 months are anticipated to persist into November, when a fork in the road comes up as a consequence of the next Federal Reserve meeting.
I’m hoping each night I go to sleep that I’ll wake up and not be sick and/or not feel sick, because the grass is certainly greener when the body feels healthy. And while the grass may get greener for me when I get my full health back, gold’s shine looks to stay a little dulled for the short and medium terms.

Andrew

Technical Foreshocks

I had the pleasure of being woken up this past Saturday by what was yesterday revealed as the strongest earthquake in recorded history in Oklahoma, a magnitude 5.8 on the Richter scale. My door was going back and forth in the doorframe, some of my drawers were pulled out by an inch or two, but no damage.

It does, however, present yet another reminder of what could be coming if fracking, assumed to be the primary cause of increased tectonic activity in Oklahoma, continues. It's this kind of foreshock that we're starting to see in some technical indicators.

TeleTrader

One tool I took to playing around with is the Fibonacci retracements tool from teletrader.com . In a nutshell, there's a significant amount of mathematics behind the Fibonacci sequence and associated 'golden ratio', to the point where scientists generally agree the Fibonacci sequence is found commonly throughout nature in many forms. One of these forms just happens to be the stock market.

I began this retracement from the valley of the Dow Jones Industrial Average during the 2008-2009 financial crisis. I didn't begin the retracement from the lowest point, as you can see, since there is some apparent support right around where I placed the 100.0% line, and that support stuck around from September 2008 until roughly April 2009. I then placed the 0.0% line around where we are now, again right around an area of resistance that the Dow appears to be encountering, and where we are meandering right now in the upper 18,000's.

The cool thing about TeleTrader is when you decide your bottom and top points, it outlines the Fibonacci retracement levels automatically, a nice bonus for those who may be somewhat math-inclined (I was formerly a meteorology major, after all) but don't have the time to calculate all of those levels, like myself. So, when the retracement levels are all drawn out, it becomes apparent that the Fibonacci retracement concept does actually work. I've annotated areas of resistance and support to show how the Dow stuck around areas between two retracement levels, and it's no coincidence how these areas of support and resistance line up incredibly well with the Fibonacci retracement levels. It's not a perfect correlation, as you can see by the 2013 period where support and resistance levels were a little bit away from the Fibonacci levels, but for the remainder of the graph, the shoe more or less fits.

If we're to trust this Fibonacci retracement set, we should be at or just past the peak of our bull market. I personally believe the peak came a handful of months ago, and we're starting to see a slowdown in momentum in equities, as well as remarkably low volatility signaling a level of investor complacency that could cause big trouble if/when a negative surprise shock hits the markets. But that's a whole other post to write about.

TradingView.com

This meat-and-potatoes graphic comes from tradingview.com , which has a cornucopia of technical analysis indicators and indexes and all that fun stuff. We're taking a look at the Dow Jones Industrial Average since around 2002-2003 until present day at the top, the Dow's Momentum index values in the middle, and the Relative Strength Index on the bottom.

As far as this graphic is concerned, at quick glance, things seem just fine and dandy. We're near record highs, the RSI is in a comfortable range (albeit gradually inching upward), and momentum remains positive. However, this is all a bit deceiving, and to illustrate this, we bring in volatility.

TradingView.com

 In the above image we see the Dow Jones Industrial Average from mid-2011 to present day, with the CBOE's Volatility Index superimposed in blue. The horizontal aqua line illustrates the lowest point that the VIX hit this past summer on a weekly scale, closing the week of August 15th at 11.34. For some perspective, that level was last breached in July 2014, and although the index frequently drops near this line, it's rather uncommon to see it go as low as it did this past August.

That tells us that the markets are complacent, as we briefly discussed earlier. This complacency makes for a significant problem in the RSI, which is defined by Investopedia as an index that "compares the magnitude of recent gains and losses over a specified time period to measure speed and change of price movements of a security."
The key phrase there is "recent gains and losses over a specified time period". You'll notice that American equities are trading in a pretty narrow slot right now, as confirmed by low volatility. Hence, recent gains and losses are going to be low, likely artificially lowering the RSI and making it appear that equities are not overbought, when in fact they very well may be.

This volatility issue also hurts the momentum indicator to some degree, as the same issue about recent gains and losses pops up. With minimal movements day-to-day in equities, it's no surprise that the momentum index in the last month or so is oscillating around the zero-line.
These oscillations can give some clues, however. Note how we've started to see lower highs and deeper lows in the momentum index from about 2015 onward, especially back in 2015. We've lately seemed to buck that trend, but I'll be darned if there's no concern over the momentum index hitting levels not seen since the financial crisis, back in 2015. That's a foreshock in a nutshell.

TradingView.com

But hope is not lost! We still have the ADX, the Average Directional Index. This index helps identify the strength of a trend. It doesn't identify if the trend is positive or negative, but shows how strong the trend is. While this index is subject to some of the same limitations imposed on the RSI and Momentum indicators, with how equities are overall not too active, the ADX raises a key point in that there really is no clear trend in the current market. ADX values below 25 are seen as the market either exhibiting a weak trend, or no trend at all, and we've been consistently below 20 in this index since late April! Now, since late April the Dow has gained a good 500-600 points, which is nothing to shake a stick at. But it took us close to 5 months to get there, a lot of dawdling, and a clear indication that there is no real trend. The best trend I can think of is stagnation now that we're likely at the peak or just past the peak of our bull market in equities.

To sum all of that up, while the RSI may be flawed due to a lack of movement, the overall picture of the ADX can provide some context. According to that index, we haven't had a clear trend since the first two months of 2016, when the Dow shed a couple thousand points. Since then, it's just been a meandering climb up to where we are now, the upper 18,000's.

This is a foreshock because the longer we continue without a clear trend, the more wary investors will grow, as more questions are asked about the state of the economy, whether we're peaking the bull market or just starting one. It's plausible that this uneasiness will lead to a climb in volatility, which could set off a chain reaction, but that's one of literally hundreds of possibilities in our current market state.

In sum, much like the increasing occurrence of Oklahoma's earthquakes culminating in a record-5.8 magnitude quake this past Saturday, technical indicators are also sending out foreshocks in the form of Fibonacci retracement red flags, the lack of a clear direction in the markets combined with concerningly-low volatility, and possible hints of less positive momentum in the markets, particularly in late 2015/early 2016. There are fundamentals that are also issuing foreshocks, and one day soon we'll discuss those as well, but for now I'll leave you with an all-too-real paraphrased-excerpt I came across while reading Didier Sornette's "Why Stock Markets Crash: Critical Events in Complex Financial Systems":

Much to the contrary of expectations, stock market crashes arise when economists and analysts are the most positive about the economy and the economy's future. That way, everyone's caught even more off-guard when things suddenly turn south.

Andrew