This week saw a continuation of the existing FX and stock market trends I’ve been alerting you to for the past several weeks.
Those trends have been quite profitable for myself and Pattern Trader subscribers, as you can see here:
We’re up 770 pips right now on a variety of trades, and I’m planning to stay in these trades until further notice. The trends look set to continue. Aiming for large profits when they’re on offer is exactly what pattern trading is all about.
For example, AUDUSD is hovering on a ledge at the 0.70 price level and looking to head lower.
And after hitting a resistance pocket just above the 112 price level, USDJPY appears to be rolling over...and also headed lower.
I’m going to give you charts for all of these and a few new trade recommendations too, but first let’s take a look at USDI (the U.S. Dollar Index) as it’s the bellwether for the biggest currency of them all and an indication of the overall market:
As we can see, nothing much is happening here … still. The dollar is still locked within its tight channel.
There was a key reversal in the last week which ensured USDI within that channel. Not that this reversal happened at previous resistance, so it looks like we’ll be seeing more of the same here for the foreseeable future.
Overall, the dollar is stronger against some pairs and weaker against others. Those are the pairs we’re going to look at right now.
First of all, AUDUSD (the Australian dollar against its American counterpart).
There’s been a clear downtrend from .95 to a ledge at .70 here.
The double top at .82 was further bearish confirmation of the overall trend before it resumed once again. The neckline for that pattern was at .75 and the price has done nothing but drop since breaching it.
Most recently we’ve seen a procession of lower weekly highs so the direction of AUDUSD is fairly clear.
That’s why I expect AUDUSD to be trading in the low .60s later this year. If you’re not already short this pair (see the table at the top of this article for our existing short trades here), here’s a new short trade to consider …
Short AUDUSD with a SELL Stop @ 0.6975. Your stop should be fairly wide here – about 0.7087 would be the right area. Don’t risk more than 1% of your account. Here we’re looking to capitalize on any dip below the low of last week’s inside bar.
The take profit is also fairly wide: I’m aiming for something in the 0.65 – 0.66 range here. That means this is a bet on AUDUSD taking out recent December lots and plunging lower still.
If you don’t like the idea of shorting with a stop order, then consider shorting any AUDUSD rally that might materialize.
Now let’s take a look at USDJPY (the dollar against the Japanese yen). Over the past few months, this pair has rallied from 104 to 112.
However, I still feel the ultimate direction is down because of the historic head and shoulders and descending triangle patterns.
If you’re a long-term reader, you might notice I’m re-drawing that descending triangle to incorporate the two most recent tops rather than consider them false breakouts. By this point in USDJPY price action, that adjusted pattern is now the most sensible one for this pair.
Most recently there was a key reversal two weeks ago. An interim double top also suggests this pair is headed lower. That’s why I have two short positions on right now and I’m staying in.
In fact, taking out the neckline of that double top at 110 should pave the way for much lower prices over the next several months.
Now for a “new but old” trade I’ve been keen on for quite some time: going long GBPNZD (the British pound against the New Zealand dollar).
Going back to late 2016 I’ve been bullish on this pair due to the double bottom and subsequent rounding bottom that formed.
More recently, the price has broken out of the ascending triangle that’s formed since December last year. The steady upward trend here means there’s lots of underlying strength in this pair.
I think we’re on the trajectory to much higher prices. While we could see a re-test of the neckline, the GBPNZD price has done considerable work already in securing this breakout.
Here’s how to get in on the action …
BUY on stop @ 1.9847. Because of this pair’s extreme volatility, the stop loss is very wide here. Consider using 1.9587 while taking no more than 1% risk.
As for the take profit, I’m aiming high for 2.0477.
That’s because this pair has nowhere to go but higher. For me, the risk is not being long when this thing breaks out. When it moves, it will REALLY move.
I have another GBP related trade idea: short EURGBP (the Euro against the pound).
In the past, I’ve mused that this pair will eventually roll over and go lower, although it’s taken much longer than expected.
But after it finally established a long-term quadruple-top price pattern, EURGBP has at last definitively cracked the 0.85 support level.
I think it’s on a trajectory toward the next target level of 0.83. It’s worth shorting any rallies that may occur here. Just remember this pair tends to move slowly and patience is required in any short position.
Gold is hanging on … barely.
XAUUSD (spot gold) has been bouncing within a range from 1268 to 1288 recently, but long-term patterns suggest this pair should ultimately be headed lower.
On the monthly chart, the major lows and highs create a symmetrical triangle and right now we’re sitting at the precipice of the upper trendline.
While we could get a breakout either way, it looks like we’re more likely to go lower.
That’s because the most recent rally appears to have failed. The main thing to watch for is a true breakdown back into the body of the triangle. Any move below 1250 should lead to a meaningful drop to 1200 or below.
This is confirmed on the weekly chart for gold too.
There’s a bullish ascending triangle here. However, but all the resistance has been at or near the 1340-1360 price level.
The last gold rally barely hit 1340 and since then we’ve been trending lower. It looks like an interim double top right now and the price is hovering at the neckline.
We could churn sideways for awhile, but a move down to 1200 is the most likely eventual target. I’m staying short here.
Meanwhile the stock market has paused after the recent new highs in the NASDAQ100.
While tech stocks are still in a long term uptrend (the NASDAQ100 is an excellent proxy for tech stocks in general), we’re now in a resistance area despite the recent new high.
I think the price could very well go sideways for a while and re-test the support line at the old high.
Interestingly enough, the DJIA (the Dow Jones Industrial Average, a.k.a the Dow 30) failed to make a new high with the NASDAQ.
It’s still stuck below the old highs set back in October last year as is the S&P 500.
So we’re left with the question of whether or not the other indexes will catch up to the NASDAQ …
… or if it’s the NASDAQ that will come back to earth with a bump.
Meanwhile I remain bullish on Facebook (FB) and bearish on Tesla (TSLA).
FB is showing a double bottom and the pattern is still bullish on the weekly chart.
In fact, despite all the negative news, this one looks to still be heading up. It’s still sitting at the highs of the last six months. And last week was an inside bar which represents a coiling of energy.
Given the recent price action, I think that energy will eventually be released to the upside and FB will coast over 200 and challenge its old highs sooner or later.
As for TSLA, there’s a double top here on the weekly chart.
It should go lower despite last week’s rally from a major support area. I don’t think we’ll see this rally extend too far as there’s a multi-week downtrend line established by now.
In fact, any rally over 260 should meet with heavy resistance.
Just be careful not to act too hastily. Remember that we’re in a benign trading environment, one where I don’t expect a lot of follow-through on trades too quickly.
That’s why I’m focusing on the big picture (i.e. the major price patterns) that will dominate market action going forward.
To that end, I expect GBPNZD to go higher, and AUDUSD, USDJPY and probably spot gold to go lower
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I wish you a very healthy and prosperous trading week.
Mark "TrendContinuation" Shawzin