What Disney and GBPJPY Have in Common

Mark Shawzin
October 18, 2021

n this report, I'm once again covering the three trading instruments I feel are most likely to move big next week and beyond.

Let’s start with a market I haven’t discussed for a while: AUDUSD (the Australian dollar versus the US dollar).

If we step back and look at a global view of AUDUSD, there’s an enormous, inverted head and shoulders on this chart with a common neckline around 0.73.

Back in September, we had a breakout beyond that long-term neckline, and then a retest. That created a double bottom, which indicates AUDUSD is poised to travel in the direction indicated by this bullish inverted head and shoulders and double bottom.

The retest created a new mini neckline at 0.75, and that would be ultimate confirmation that AUDUSD is ready to rise.

Once that happens, AUDUSD should head to new highs in the next couple of weeks or months.

So this is a currency pair with great risk/reward potential now.

Look at accumulating small positions and grow your overall position for the long term as AUDUSD is likely to go significantly higher.

Another currency pair poised to explode higher is GBPJPY (the British Pound versus the Japanese yen).

I’m starting with the monthly chart to give you an appreciation of the magnitude of the move we may be looking at here:

GBPJPY recently crossed a very important downtrend line that’s been governing its price behavior for quite some time. Last week's big movement is a combination of a breakout alongside multiple bullish price patterns.

Those patterns include a double bottom acting as the head of an inverted head and shoulders. GBPJPY recently broke out above the neckline of that pattern while also breaking the downtrend line.

That suggests GBPJPY is likely to rise much higher because there’s an enormous amount of room for this to run on the upside.

Here’s the same pair at the weekly level:

Now we can see the double bottom is an Eve and Adam double bottom. An Eve is represented by multiple pokes at a common support level and an Adam is a single attempt.

The shoulders on either side of the Eve and Adam double bottom create a very bullish inverted head and shoulders price pattern with a common neckline at 149.

And just like with AUDUSD, we had a breakout and then a retest.

Now with GBPJPY breaking above this recent high, it confirms this move is as real as a heart attack.

GBPJPY has built a giant base and the bigger the base, the more into space.

However, this trade is going to be highly volatile. For example, last week's trading range was about 400 - 500 pips. So keep your stops very wide. Take a small position to get started, then look to accumulate a larger position over time.

You won’t be able to contain your trade with a 30 or 50 pip stop because GBPJPY is going to roam in 300 pip increments on the way up. But if you're patient, this is going to be a monster.

I also want to look at GBJPY on the daily timeframe before I move on to the next instrument:

That’s because what's going on here is extremely similar to what I’ll discuss next.

This is the beauty of looking at trading instruments from the perspective of price, by the way. Patterns repeat themselves and it doesn't really matter which instrument you’re analyzing -- it can be corn, natural gas, gold, a stock market index, and so on.

The same price patterns keep showing up, and therefore we get an insight to what behavior is likely to ensue.

Note that GBPJPY was in a huge uptrend until it transformed to sawtooth price action within the confines of a descending triangle.

In that daily chart, GBPJPY kept making lower highs against a common low until it eventually broke out to new highs. That means the descending triangle was a continuation pattern. It continued the earlier uptrend.

Now I'm going to show you the same pattern in another trading instrument, and you can think of it as a preview of coming attractions.

Here’s the weekly chart of DIS (Disney), the famous entertainment company:

Perhaps you'll notice some similarities with the daily GBPJPY chart.

There’s an uptrend here, followed by a descending triangle. Remember that triangles can be reversal or continuation patterns.

We saw with GBPJPY that its descending triangle was a continuation pattern, and I think we’ll see the same phenomenon here in DIS. That’s primarily due to the number of bullish key reversals forming the base of the triangle.

These key reversals plunged down but then closed at or near the high of the week each time. That indicates the buyers were in control and that the sellers were not able to follow through and dominate the market.

And most recently, there’s a coil of inside bars on this DIS chart. There are three weekly inside bars -- their individual ranges were all contained within the much larger bar four weeks ago.

This coil represents stored energy waiting to be unleashed. I’m surmising that DIS is going to uncoil out of this descending wedge to the upside soon, and possibly very quickly.

To play this, put a buy stop above last week’s high around $179. Then sit back and let the market do its magic for you.

Personally, I got long the 180 Disney calls that expire next week, so obviously I'm betting DIS is going above 180 in the next few days.

However, I don’t recommend you do the same. I’m just pointing out how strongly I feel this will be an explosive move by virtue of the coiling price action within DIS’s descending triangle pattern.

Now I'm going to finish up by looking at XAUUSD (spot gold):

For the past several months, I've been watching gold just traverse within an ascending broadening price pattern.

While this can be a continuation price pattern (just like triangles) where prices drop, bounce off the lower line, and continue to all time new highs, this pattern can also be very bearish.

If price breaks the lower line of an ascending broadening formation, then the price can drop a lot.

Gold looks more likely to follow through with the latter scenario, despite all the rhetoric about inflation and central bank quantitative easing and so on. Going by that talk, you’d think gold was heating up and on its way to $3,000.

Yet XAUUSD looks like it’s heading toward the lower support line at $1,700 - $1,725. If it pierces that, we're likely to see a move much lower.

In the meantime, the yellow metal has been grinding between $1,750 and $1,850 with a recent mini reversal where it shot to $1,800 and then leaked to the downside. Gold looks like it’s struggling to gain any traction because every rally is met with a lot of resistance. At the same time, it’s managed to bounce off its lows each time it’s hit them.

I would play this with a sell stop under recent lows around $1,747. If the market goes up, no harm, no foul. Your short order won't be filled and you won’t take a loss.

But if the market moves down, you're likely to be put into a nice trade with explosive downside potential.

And that’s it for the week!

To summarize, I’m very bullish on AUDUSD, GBPJPY and DIS. I’m bearish on XAUUSD, with the reservation that it might rally once again from its recent support lows when it gets there.

I wish you a very healthy and prosperous trading week.

Regards,
Mark "YenAfterBurners" Shawzin