1,577 Pips (And Counting) In Just 2 Weeks Plus Tarnished Gold and Silver Prospects
What an interesting two weeks it’s been for pattern trading! And that’s despite the dollar doldrums and some disappointment for precious metals bulls too.
I’ll get to what’s hot in just a moment including some recommended trades. But first, let’s take a look to see just what happened (or rather, didn’t happen) in the dollar this past week.
Last week’s USDI (U.S. Dollar Index) trading action took us to the middle of the long-term trading range its been holding for some time now.
Yes, there was a bullish key reversal last week. And right now USDI is looking more strong than weak.
However, we need a move outside the channel to make a firm call here. That’s why I’m not looking for a tradeable USD move at the moment. There doesn’t look to be anything but a lot of largely meaningless back and forth action for now.
Things are similarly ambiguous for USDJPY (the dollar against the Japanese yen).
I’m long term bearish on this pair based on the historic head and shoulders with a double top you can see here. That pattern represents an overhang on USDJPY.
The descending triangle we’ve seen since has only confirmed that. (We’ve had several winning trades on the downside too, most recently during the December spike down.)
Since that long spike, we’ve seen some sustained bull power in USDJPY. That descending triangle has been breached on the upside for the first time in a long while.
I’m reserving judgement before turning bullish, though. That’s because when you look at the false breakout we saw last year, this could easily be another one. USDJPY needs to break through 114 before I would consider the bearish case finished.
That means there’s lots of work to do between the current price and 114 even if JPY is looking a bit weak across the board right now. So staying on the sidelines is the best course of action for now. I’m just observing the price action until we see a breakout past 114 or a confirmation (such as a bearish key reversal) that the current bearish case remains intact.
So where is the action?
The AUDUSD pair (Australian dollar against its American counterpart) is about the only dollar-related FX pair trade I like at the moment.
AUDUSD has been in a downtrend since 2015.
As part of that downtrend, the pronounced double top I’ve highlighted here has since marked another decline. Then another, smaller double top followed that. This one has a neckline around the 0.70 level and that’s the price I’m targeting for a short.
I think going short at 0.70 is even more compelling when you consider that last week was an inside bar. Remember, an inside bar represents a coiling of energy that will be released explosively at some point.
I think that movement will be down. In fact, any breakdown below 0.70 should lead to AUDUSD dropping for the next several weeks and months. Place a sell stop accordingly.
The British pound (GBP) is even more interesting, not so much against USD as against AUD and NZD (the New Zealand dollar).
In fact, the massive gains in GBP-correlated pairs (especially GBPNZD and GBPAUD) was one of the two most noteworthy actions last week. (I’ll get to the other later in this article.)
You might recall that beginning in mid-February, I alerted you to an impending move to the upside in GBP across the board. I don't say this to “toot my own horn” (although I admit I’m quite satisfied by these early calls), but to re-affirm my abiding trading philosophy.
You see, I firmly believe that price is inherently a discounting mechanism. Price is ahead of events.
The bullish moves in GBP pairs were preceded by price patterns that occurred weeks, even years, before last week’s massive gains. Price really does lead the news.
Here’s my February 17 email and GBPAUD trade set-up analysis that went out prior to the recent price spikes:
Here you can see how the patterns I identified (the triple bottom, key reversals along a rising trendline, and finally an inside bar) ultimately laid the foundation for the explosive price action that subsequently took place.
That strong move is shown here in this updated GBPAUD chart:
The neckline of the triple bottom acted as support for a second triple bottom and prices rocketed to a multi-year high at 1.8642. (Yes, that’s a 357 pip gain in just 2 weeks.)
There’s likely to be some resistance in the near term, but ultimately I believe GBPAUD will go even higher over the course of this year. I see both 1.98 and 2.06 as likely targets. The 2.06 level is a full 2,000 pips higher than the current price.
This is exactly the type of trade I target with pattern trading analysis.
Now let’s look at the charts (and trade recommendation) for a similar trade in GBPNZD on February 18:
As you can see, I recommended a buy at 1.8901. I then recommended adding to that position at 1.9027 in this email on February 20:
The subsequent price action generated about 800 combined pips as GBPNZD raced higher to 1.9147.
So why was I so bullish? On this above daily chart we can see the double bottom, itself part of an inverted head and shoulders pattern. Both patterns are very bullish, especially when you look at some of the long spikes on the right shoulder.
That’s how we got so many pips before the biggest move up.
But there’s more good news: I think this move is far from over, so don’t sell out yet. The longer price consolidates at this level, the higher the chances of a serious move much higher, perhaps to 2.04.
Again, this is another example of how prices are often indicating the price action well in advance of events.
One final GBP-related note for EURGBP (the Euro against the pound).
For this pair, I made the case that if the market was going to go higher after multiple bottoms then it should have done so already. Instead the market was looking very heavy from the quadruple top and I recommended selling at 0.8657 on February 24 as you can see here:
EURGBP subsequently sliced through the neckline which (until that point) had been holding over the last year and counting.
EURGBP has bounced slightly, but I remain bearish with this 57 pip gain and I think further gains are coming on the short side here. My near term target is 0.83 or lower.
All these trades together are how I’ve accumulated 1,577 pips in the last couple of weeks.
Again, all this comes from reading patterns and entering when the price momentum is in our favor. We don’t rely on news to “move the market” because the moves are already primed to happen from earlier price action.
That includes when things don’t go the way we’d like.
When XAUUSD (spot gold) broke out of a long-term Symmetrical Triangle price pattern, I was hopeful we might see a strong bull run contingent on certain price levels being breached.
Unfortunately, recent price action once again saw the yellow metal turned back at the 5-year resistance level between 1340 and 1360. While it’s still early in March, this month's retreat back into the long-term symmetrical triangle is starting to feel like last month’s advance was nothing more than a “bull trap”.
If this is the case, XAUUSD could fall precipitously from current levels to 1200 or thereabouts. I think the gold bulls will have to wait awhile longer before that yellow dog starts barking again … for real.
If you want more evidence, gold bearishness would appear to be confirmed by spot silver’s price action (XAGUSD) too.
XAGUSD has also failed to budge on its monthly chart. It’s very unlikely that gold will move without silver following and right now silver looks more bearish than bullish:
Since it’s been awhile since I’ve shown you a silver chart, it’s worth noting the large double top on the monthly chart and the neckline at 26 from which silver has never recovered (thus far).
Silver is also tracking within a bearish descending triangle and has failed to break out from this pattern. Silver seems more likely to hit the 14 support level (and possibly break down from there) rather than stage a bullish breakout to significant highs.
If and when that happens, it’s difficult to make a bullish case for gold either. The day of a precious metals bull market will take awhile longer to arrive.
As for the stock market, there’s been little action of note recently.
The U.S. stock indices have rallied approximately 20% from there respective December lows and are currently trading at critical resistance level(s) – 1,750 in the Nasdaq – QQQ (ETF), and 2800 in the S&P500. Penetration above resistance levels would imply the long-term bull market in this asset class is intact
But instead, things remain stuck in neutral with nothing new to report from last week. I’ll have more to say on U.S. stock indices when they make a significant move.
For now, you’ll find it much more interesting to follow any GBP-related pair. Especially GBPAUD and GBPNZD on the long side and EURGBP on the short side.
Also consider a short on AUDUSD if the trigger price level is breached.
Mark “GBPNZDLooksJacked” Shawzin