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Monthly Chart Extravaganza: Balancing FOMO with Seasonal Inertia

Mark Shawzin
June 19, 2019

Therefore, my greatest personal challenge around this time of year has always been to err on the side of caution as markets are likely to be listless or range-bound. I do have an innate fear that if I don't take certain trades when the opportunities are there, they’ll get away from me.

That’s commonly what’s known in trading circles as the Fear-Of-Missing-Out (or FOMO).

The specific patterns I’m seeing suggest that the Japanese yen (JPY) is strengthening against most major currencies while the Australian dollar (AUD) and New Zealand dollar (NZD) are weakening against most major currencies.

I expect these trends to continue and accordingly, there are a bunch of trades based on long-term price patterns which are on my radar right now.

For example, I believe it’s a no brainer to go short AUDCAD (the Australian dollar against the Canadian dollar), NZDCAD (the New Zealand dollar against the Canadian dollar), AUDCHF(the Australian dollar against the Swiss franc), NZDJPY (the New Zealand dollar against the Japanese yen), AUDUSD (the Australian dollar against the U.S. dollar), NZDUSD (the New Zealand dollar against the U.S. dollar) and USDJPY (the U.S. dollar against the Japanese yen).

I’m already short USDJPY.

That being said, even though I see the potential of these trades, I’m counter-balancing my enthusiasm with the anxiety of the seasonal range-bound environment we typically see in June through September.

Given my propensity for perfectionism, it took me a long time to figure out how to handle this inter-personal conflict. For me, the frustration of losing in a trading range environment is far worse than the feeling of missing out on a trade that I thought would work in the first place.

The result is that I eventually made a truce with myself. I’ll let the “good” trades go by — if they happen — in exchange for not feeling the frustration when they don't.

Keep that in mind when we look at these pairs. All that glitters is not gold during this period of the year!

I should also point out that virtually every chart you see in today’s article is a monthly chart. That means each bar represents one month of price action. We’re taking a long view here with an eye on where these pairs will go once the summer doldrums are waning and the real action begins.

Let’s start with AUDCAD.

As I mentioned earlier, AUD is looking weak across the board along with NZD. There’s no sign of a letup either. So I think they’re going to get a lot weaker over the long term too. The way to bet is on the short side of both of these.

In AUDCAD, the first bearish pattern is the double top (M-top) which represents a reversal in direction and suggests a move lower over the long term.

There’s also a descending triangle here. And right now the price is hovering not far away from that important price level at the neckline. I think it will break through.

That’s because the price isn’t looking very resilient at the current low level where previous support was found in earlier years. In fact, we’re at multi-year lows already.

A break below the neckline should open up significant new lows which haven’t been explored for many years in AUDCAD. This could take a few weeks or even a few months, but it should happen.

That’s why I feel any rally here should be used as an opportunity to go short.

We’re seeing similarly ominous price action in the AUDJPY monthly chart too.

This chart also highlights the strength in the Japanese yen, by the way. In AUDJPY we’re getting a double play on AUD weakness and JPY strength.

The easiest pattern to spot is the double top here. However, it’s also part of a much larger head and shoulders pattern extending over a very long period of time.

The AUDJPY price is currently just a hair above the neckline and looking very weak.

Just like AUDCAD, any breakdown below here should result in much lower prices in this pair in the weeks and months to come. I think there’s very little risk in being short. Look to short any rallies that materialize here, then wait.

The NZDUSD pair also looks to be going nowhere but lower over time.

A strong double top (an M-Top) called the start of the downtrend.

More recently we’ve seen a mini head and shoulders pattern form (you could also consider it a triple top if you like). This pattern has its own neckline which has subsequently been breached with a retracement back to that neckline.

NZDUSD is (like so many of its AUD and NZD peers) just a hair above multi-year support levels now. We might see some sideways action due to seasonality, but the long term trend is down.

Try to be patient … I foresee some great profits ahead in NZD and the AUD pairs I’ve shown you.

As you might expect NZDJPY is also looking very bearish with a wide double top here.

The descending triangle’s neckline is now about to be breached as NZDJPY is now hovering above the neckline of that triangle.

As with AUDJPY, there’s a powerful downtrend in place here. So use any rally as an opportunity to go short, although don’t be surprised if we see a range-bound environment for the next couple of weeks.

With that said, here’s a trade to consider …

Shorting NZDJPY with a limit order at the 0.71 level with a stop loss near 0.72 and a take profit near 0.67 would be an ideal trade. Take this if you’re patient and don’t risk more than 1% of your account on it.

Benefitting from JPY strength is so tempting.

In fact, the yen is so strong it’s more powerful than even the USD as we see here with one of my long-term favorites USDJPY.

Historically there’s a head and shoulders with double top plus the more recent descending triangle to act as the main bear patterns:

This pair has made a series of successively lower highs.

Note that while it did catch a bounce at the 108 area for now, I still view any rally as a dead cat bounce and will add to my short positions accordingly.

Now onto gold.

Right now, XAUUSD (spot gold) is the pair that’s simultaneously the most prominent on my radar and the most vexing too!

This pair has made a series of successively lower highs.

Note that while it did catch a bounce at the 108 area for now, I still view any rally as a dead cat bounce and will add to my short positions accordingly.

Now onto gold.

Right now, XAUUSD (spot gold) is the pair that’s simultaneously the most prominent on my radar and the most vexing too!

Silver’s chronic weakness and gold’s recent strength has resulted in a 330-year high in the Gold/Silver ratio. That ratio (simply divide the gold price by the silver price) now hovers above 90.

Either that ratio is now meaningless, silver will rally significantly, or gold will fall.

I see little opportunity for XAGUSD to rise in the near term. Silver is showing very lacklustre price action as it remains trapped within a descending triangle.

Also, that pattern does not look like a bottoming pattern. There’s nothing here to suggest spot silver is poised to head higher with a huge move that would reduce that historically anomalous gold-silver ratio.

Right now silver is (at best) at an inflection point where it could go either way.

So while I want to jump on board this gold run, I feel constrained by these conflicting ideas/signals between what gold wants to do and what it’s most likely to do. To resolve this, I’m going to monitor the price behavior of gold at this very important $1320 – $1360 price level. I’ll keep you posted on my thoughts and analysis.

The stock indices are also in the summer doldrums at the moment.

​While the NASDAQ index made an impressive bullish key reversal on the weekly chart the week before last, its still resting below a significant resistance area bounded by a double top. Accordingly, I’m on the sidelines in the stock market until I see evidence of a break-out one way or another.

That’s not necessarily the care for individual stocks, of course.

I’m very bearish on Netflix (NFLX) thanks to the double top at the 420 level followed by a two rounding tops. If you want to be picky the second rounding top is almost a mini-head and shoulders so I’ve labelled it as a head and shoulders on the chart below:

Either way, all the patterns are very bearish and NFLX is likely to fall in the near term.

To capitalize on this move, you can short the stock or buy put options. You get less leverage by shorting, but it’s much safer and not time dependent.

The danger of options is that if NFLX slides sideways for while, then you lose premium very quickly and could get wiped out before the big move down. So be cautious about using options in the current trading environment.

However, the direction to trade this stock is definitely on the short side. I see NFLX dropping all the way to its long term trendline in the not too distant future. Here’s a suggested short trade:

Short NFLX (NetFlix Inc) at $336 with a stop loss at $346 and a take profit target at $295.

Again, let me reiterate there’s absolutely no need to rush into any trades at this time. There look to be some fantastic trades shaping up for later this year, but past experience has informed me that (mostly) waiting out the summer months is the way to bet.

I wish you a very healthy and prosperous trading week.

Mark “FOMO” Shawzin