Two FX Pairs & Two Stocks To Trade Plus Some Thoughts on Gold
In this week's report, I'm going to look at the best upcoming trading opportunities in the market.
First we have GBPAUD (the British pound versus Australian dollar):
For the last several months GBPAUD has traced out a long-term bottoming price action. There’s a double bottom at 1.75 and then multiple shoulders on the left and the right side.
The multiple shoulders create a complex inverted head and shoulders pattern which is very bullish.
In fact, the whole structure also looks like a rounding bottom.
There's an old trading saying that applies very well here: “the bigger the base, the more into space”.
GBPAUD has been laying this foundation for the last year and a half. It recently cracked the neckline of the whole pattern and broke out at the 1.85 level.
Then last week GBPAUD established a beachhead at new all-time highs above 1.90. Now it seems there’s no end in sight as to how high GBPAUD is likely to go. I think it will meet and possibly exceed the old highs around 2.10.
So there’s still a lot left on the table. I recommend going long GBPAUD if you don’t already have established positions. Give this trade a wide berth, meaning a wide stop loss. Allow it a lot of room and GBPAUD should work higher over the coming days, weeks, months, and possibly years.
Next up on what I see as a very fertile opportunity are the Japanese yen trading pairs.
I'm specifically looking at EURJPY (the Euro versus the Japanese yen):
Over the course of last year, we've seen a tremendous run-up in EURJPY. But I feel this is a countertrend move -- it's counter to the long-term primary (secular) downtrend in this pair.
EURJPY has risen to a key resistance level where it not surprisingly stopped. Now looks it ready to make a U-turn at the 134 level.
We can interpret the most recent structure as a head and shoulders.
What’s more, EURJPY closed under the neckline of that pattern last week. That confirms the head and shoulders (a reversal pattern) and suggests lower prices are on the way.
Now it's very possible EURJPY could continue to dance around the neckline. Prices often thrust through a given level, everyone gets excited and chases the move, and then the price retraces to retest that neckline again. If you get a retest and a failure, that's when you know a big trade is on.
So this is a structure to keep your eyes on now and in the future.
I'm currently short EURJPY and looking to add to my short position as this pair looks increasingly likely to pick up steam to the downside.
Another opportunity I've been looking at for quite some time is NFLX (Netflix):
Netflix has been in a bullish trend for quite some time but has stalled out in a trading range recently.
I think it's increasingly likely that NFLX will take out the top of the trading range rather soon.
In terms of price history, NFLX has adhered steadily to a long-term uptrend line and eventually it broke out above the triangle pattern. Note how it retested the triangle before moving up decisively.
NFLX is now in an established trading range between $475 and about $575. Within that range, there’s a subtle double bottom – the neckline for that pattern has just been retested.
During a recent session of the Boiler Room (where I look at the markets in the pre-market and at market opens) I suggested buying Netflix in the pre-market at $521.
That's exactly what I did personally – and about half an hour later NFLX was in the mid $540’s.
But I don’t think this move is done yet. Based on how the stock closed, it’s looking increasingly likely to bust out of its long-term trading range soon.
Now here’s a stock that looks to be going the other way: BYND (Beyond Meat).
Over the course of many weeks and months, I’ve talked about the bearishness in this chart thanks to the multiple bear price patterns.
There’s an older head and shoulders, plus a more recent combination of a double top and a head a shoulders with the double top acting as the head of that pattern.
All this means that over the course of about a year and a half, BYND has established a neckline at the $113 level.
The current price is $117, just $4 above that line.
I think it’s inevitable that BYND will drop to that neckline once again and then break below it. Any breakdown should open up a very large move to the downside by virtue of the large head and shoulders / double top combination that’s already in place.
I think BYND gets cut in half on the way down – we’ll see the stock drop enough to shave 50% off the current valuation.
Keep an eye on the $113 level as I think it’s likely we’ll see lower levels very, very quickly.
Now I want to look at XAUUSD (spot gold):
For the past several months, gold has traded within the cadence of an ascending broadening price pattern. This pattern starts out narrow and then broadens over time.
It’s inherently a bearish price pattern. If the lower edge is breached, price often drops to the beginning of the pattern (about $1,200 in the case of XAUUSD).
But it's entirely feasible that gold catches more support here and goes the other way toward the top of the pattern once again.
I feel that’s less likely. I feel the path of least resistance is going to be lower, but it’s a question of timing.
Last week was an extremely narrow range bar. This suggests the recent rally is stalling out. While it could be a “pause that refreshes” in a continuing move to the upside, the move increasingly looks like it’s stalling out.
There are a couple different scenarios on the way: gold could take out the high and then fail, or just roll over, take out the low and keep falling. For now I’m watching the dance around the narrow range bar.
What I like about these narrow range bars is that you can enter your trades with very small risks: I suggest putting a sell stop under the low of last week around $1,775 with a stop loss a little bit above the high of the narrow range bar.
That lets you put your toe in the water and test the market if gold really does roll over. However, there’s no rush. Gold probably needs some time to build out from the recent key reversal before dropping.
Just understand that I'm increasingly on the lookout for establishing a beachhead on the short side in gold.
And that’s it for the week!
To summarize: I’m bullish on GBPAUD and bearish on EURJPY in the FX space. I’m bullish on NFLX and bearish on BYND in the stock market. And I’m still looking to short gold when the opportunity presents itself.
I wish you a very healthy and prosperous trading week.
Mark "DollarRampage" Shawzin