Traders Edge- 9/17/12 Watch the pullback

The AM futures are stating that the equity markets are set to pullback on the open. Today's trading action should be telling as to the course of this rally. What I find surprising is that in Frdiay's trading many of the indexes looked unable to handle higher prices.

For instance, the SPY traded up to a high of $148.11 in AM trading on Friday, but spent the remainder of the day pulling back. Here is the chart for the SPY on an intraday basis.

The same trading pattern occurred in the Russell 2000 IShares trust (ticker IWM). The IWM traded up $86.96 but traded flat to down the remainder of the day.

Ditto for the Power Shares QQQ Trust (ticker QQQ)

This says to me that we are either seeing sellers coming into the market, or we seeing operators holdign back the price to get into the markets. I will be watching the volume levels to gauge the strength of traders convictions.

I would also note that similar patterns appeared in other markets. For instance, the Euro and the dollar traded off their respective high and lows. For instance, the Currency Shares Euro Trust (ticker FXE) on an intraday basis........

... while the UUP (the Power Shares US Dollar Bull Index) showed an opposite pattern, and spent most the trading day on Friday retracing some of the loss.

 In my mind, the dollar is the key index to watch. On daily basis, the UUP's setup is a rejection of the low set by the October 2011 swing point.

 The UUP is trading down into the October 2011 swing point. Volume levels have been greater to downside, which to me suggests supply coming into the market and further downside potential. That said, current volume levels around 6 million shares compares to October 2011 benchmark volume levels averaging about 8 to 10 million shares. We may need more supply to jam the dollar lower. If the dollar does not continue to decline, it could call into question the equity/commodity market rally.