Most of the markets I watch are balanced on a knife edge right now. The explosive moves are on the way, but we need to apply a bit more patience before the big money-making opportunities are lined up.
However, I’ve found at least one good trade to take now if you’re so inclined.
I’ll discuss that trade in just a moment, but first an overview on how everything’s balanced and where I think each instrument is most likely to go.
The U.S. dollar (USD) has remained remarkably resilient despite dovish comments from the U.S. Federal Reserve. (If you’re not familiar with that term, “dovish” refers to a stance that could weaken the currency with interest rate cuts while “hawkish” refers to a more aggressive stance to strengthen a currency with interest rate rises.)
With the exception of the post-Brexit vote rally we saw in GBPUSD, the dollar rose against most of its major counterparts last week.
The US Dollar Index (USDI) shows this for us with a small rally. The net result is that the dollar remains range-bound at the upper end of its trading range for the time being. However, USDI is clearly at an inflection point.
That’s because we can’t yet tell whether USDI will break to new highs …
… or roll over and plunge from current levels. I was dollar bearish last week but a little more patience is required until the dollar’s next major direction is revealed. USDI needs to break out from its trading channel, but that may take a few more weeks.
Until that happens, we can look at dollar pairs to see if they offer any better ideas for where the dollar’s headed.
The EURUSD pair (the Euro against the dollar) has been unable to sustain its recent rally. This implies the long-term bearish head and shoulders price pattern is still in force and effect. A move below the neckline at 1.12 would confirm the bear trend offer potential of a deeper plunge to 1.05.
On the other hand, EURUSD has been unable to break the neckline of the head and shoulders so far. We’ve even seen an uptrend that began from a recent bullish key reversal right on the neckline. Until that trendline is broken, there’s still a bullish case for EURUSD too.
If EURUSD can’t force its way through that bullish trendline, then it’s possible the bearish head and shoulders pattern is “busted” and we’ll see a substantial move higher.
The 1.12 level is key to this because that’s the low of the key reversal. If EURUSD can drop and hold below that, the bear case is confirmed.
Meanwhile, GBPUSD (the British pound against the dollar) looks to be well on its way to establishing a key reversal on this monthly chart …
Because each bar represents one month, there’s still more than a week to go before this can be confirmed. However, if current prices hold, then we could very well be looking at a double bottom in GBPUSD.
That would signify a major trend reversal in GBPUSD and confirm the double bottom.
So how does GBPUSD look at the weekly level?
Here we see a bullish key reversal, then an inside bar and then a larger bar, none of which came close to approaching the key reversal lows. So there definitely some support at this level.
However, we’re close to bumping up against resistance within the bearish channel I’ve identified. GBPUSD could roll over and slide sideways for awhile before any real uptrend can take hold. A break above or below this channel should be significant.
There’s lots of bullish action already underway in GBPNZD though (the British pound against the New Zealand dollar).
This pair is once more on the rise after a few bearish weeks that began in October 2018. If you’re a long-time reader of my writings, you’ll remember that I was bullish on this pair for quite some time and made thousands of pips on the rise from the long-term double bottom and rounding bottom patterns:
Then I turned bearish on the strength of the downward price trend, but GBP’s renewed strength (featuring a key reversal near the end of the year) has swung me back to my original bullish stance.
I recommended a recent GBPNZD buy for my Elite members which is already good for an approximate 200 pip gain so far as I write this. However, that’s just the start.
I plan to hold the trade for bigger gains to come. That’s because the price has closed above the neckline for the recent mini double bottom. My target for this trade is 2.00 but be warned that there will be lots of volatility between here and there. If you want to join in on this trade, buy the dips, especially if there’s another bullish key reversal.
Now let’s look at USDJPY (the dollar against the Japanese yen).
I’ve been bearish on this pair for quite awhile thanks to the long-term bearishness of the major price patterns. And lately we’ve seen some extraordinary volatility on the downside, vindicating my stance (and trades).
You might recall that I recommended going short before USDJPY’s big drop.
We made several hundred pip on that short as the pair dropped as much as 500 pips in just eight minutes. That’s the kind of action you don’t see very often but we were on the right side of it and did very well.
Now USDJPY is trading inside the high and low of that very long weekly bar.
I don’t think the bearish case for this pair is over yet. Having said that, it’s quite likely we’ll see a rise to test the upper trendline of the recent descending triangle before the next leg down. Short any rallies here and be patient.
AUDUSD (the Australian dollar against the U.S. dollar) is another pair with massive volatility over the holidays. As with the yen, note the huge range that week.
However, unlike USDJPY, AUDUSD traced out a key reversal: the market made a key low and an important bottom in the same area as the historic double bottom
On the strength of this reversal (plus the fact it formed at the same price level as the historical double bottom) means this pair should go higher over time.
However, it will likely consolidate in the near future after the enormous price action we’ve just seen. Wait to buy until we see new highs over 0.7250. Until then, keep a close eye on AUDUSD as it could be set for a major bullish run this year.
The dollar is looking strong against the Swiss franc.
USDCHF appears to be set firmly on a trajectory toward the long-term resistance level at 1.03 after a recent bullish key reversal.
While the overall price action looks fairly chaotic, we can see that an ascending triangle has formed from the seeming randomness of the sideways price action.
I think USDCHF is now heading back to the upper level of that triangle. So even though this pair is somewhat rangebound, it looks likely to head higher over the next several weeks
Now here’s a pair I don’t highlight very often: NZDCAD (the New Zealand dollar against its Canadian counterpart).
At first glance this appears to be another rangebound market but I think there’s a good risk-reward here at the moment:
First of all, there’s an Adam and Eve double top here. The Adam top is the narrow, spiky one and the Eve top is broader and more rounded. Together they form a completed M-Top which is very bearish.
You can see how the price rose back and just above the neckline after the initial collapse. That rally failed, and now NZDCAD looks likely to drop again from current levels on the strength of the bearish key reversal we saw last week.
It’s worth shorting any rallies that appear so you can profit from the next leg down. I would expect NZDCAD to drop all the way down to the lows of several months ago, a very large move if we do indeed get it.
Gold is a lot less likely to deliver big profits at the moment, unfortunately. Spot gold (XAUUSD) is showing some pretty solid resistance at the upper trendline of the symmetrical triangle I’ve drawn for you here:
Because this is a monthly chart, the current bar still isn’t finished.
However, XAUUSD doesn’t appear likely to make any breakthrough this month. Therefore gold’s time is “not yet”. We’ll most likely see a retreat to the lower triangle trendline before there’s another run at the upside.
In other words, there’s probably one more down wave to come before the real bull run commences in gold (assuming the dollar does weaken on the Fed’s dovishness).
The upshot is that while I’ve been tempted to take a nibble at the long side of gold on several occasions, further patience is needed. Friday’s sell-off to the low 1280 level strongly suggests gold will require further consolidation at or near current levels before a major break out.
You might recall that I’m looking for a breach above the $1310 price level for confirmation of a major break-out in the yellow metal.
Now onto the stock market, the NASDAQ in particular.
QQQ is the tradeable ETF that acts as a proxy for the NASDAQ100 index.
This market has been in a bull trend for the last 10 years. That came to a crashing halt with the double top in October. QQQ may have formed a bearish head and shoulders pattern (with a weak right-hand shoulder).
Since then, a very bullish key reversal halted the decline and the market has rallied very strongly.
So where does QQQ go from here? Is this a renewal of the bull market or just a bear market rally?
Well, we’re at the first level of resistance in the market right now following that 15% rally off December lows.
If the price can rally above that downtrend line, then the bull market is somehow still alive for the foreseeable future. That does not mean we’re out of the woods with the overhang that exists in the credit markets (which I’ve discussed in the past and will do so again in the future).
But for now, QQQ is at an inflection point. Whether it can crack that resistance or not will tell us a lot about where it’s going for the next several weeks and months.
To summarize this week: many markets are still balanced at inflection points where major trends are either about to reverse or else resume their prior course.
In the meantime there are good potential trades in USDCHF and NZDCAD.
I wish you a very healthy and prosperous trading week.
PS There are 5 stocks that are rapidly about to move. And i will show you how i intend to make a fortune trading them. Just check out the link below.
Mark “MarketInflectionPoint” Shawzin