Last week I discussed the concept of busted chart patterns and I’m going to expand upon that idea in this week’s report before looking at certain other pairs and patterns.
That’s because busted patterns are developing right now that I feel you need to know about as trader.
Earlier this year, we saw a number of moves coinciding with the price action during the initial pandemic panic. During a period of high volatility, prices thrust to all kinds of new highs and new lows. Now we’re left to interpret where things are going from here.
To start with, here’s NZDCAD (the New Zealand dollar versus the Canadian dollar):
Looking at this on a conventional basis, this chart has all the classic interpretations of a very bearish market beginning with an Adam and Eve double top, so-called because one top is a single spike to a new high and then the other top is a more rounded top with multiple highs.
That double top is a reversal price pattern that indicates that prices are headed lower. NZDCAD has also traced out a complex head and shoulders, so-called because there are several shoulders on each side of the double top “head”. A huge pattern like this created a major neckline.
Once NZDCAD broke that long neckline, conventional price pattern wisdom says prices should have dropped much lower. (For reference, look at how prices dropped after the double top.)
Yet we saw exactly the opposite.
Prices spiked down and then up again before climbing steadily ever since. This price action created a bear trap at that neckline and it’s a strong indication of what I call a busted price pattern.
A busted pattern is when price action fails to agree with the preceding patterns.
NZDCAD should have gone lower due to all the preceding bearish price action, but it didn’t. A failure like this is important.
And it’s a timely reminder of why you have to be flexible when interpreting charts. I draw my structure and then watch where the market goes.
To my mind, what doesn’t go down has to go up. NZDCAD failed to drop as expected. So I think NZDCAD’s future trajectory is to the upside.
I said so a couple of weeks ago to my Elite members when I suggested we get long at a price level of 88.11. So far, NZDCAD has incrementally moved higher.
But NZDCAD isn’t the only example.
As with the NZDCAD, AUDCAD (the Australian dollar versus the Canadian dollar) is exhibiting the same busted pattern behavior were prior to the break below the neckline, there were some very bearish patterns.
AUDCAD traced out a series of bearish topping patterns over the last several years, indicating that the price had to go lower.
It did indeed plummet once it broke the neckline, but that was then and this is now. It appears those bearish price patterns are played out. Today the market is indicating it wants to travel in the other direction.
Not only has AUDCAD thrust above the neckline that was controlling prices for many, many years, it’s also formed an inverted head and shoulders price pattern with a sloping neckline.
So it looks like AUDCAD is not only going higher but higher very quickly. That’s because a sloping neckline points to faster price movement than a flat one. Here the right shoulder is sitting above the left shoulder to create a sloping neckline. This is very bullish.
This is why I love price patterns and price action because you can apply this analysis to almost any trading instrument, not just FX pairs.
By way of example, here’s XAGUSD (spot silver). There’s an eerie similarity between the price action in AUDCAD and XAGUSD.
Silver has stayed within the confines of a bearish descending triangle for several years now. That triangle has been defined by a series of lower highs.
But recently, silver prices are creeping back to the trendline that defines the triangle.
It’s been a long wait for silver to progress to this point. The bearishness has been relentless, including repeated weak bounces off the neckline at $14. Such bounces strongly suggested that this level had to be taken out. (The neckline of a bearish pattern isn’t a bottom because it gets tested many times until the price breaks down.)
When the neckline broke, silver prices plunged from $14 to under $12, but that didn’t last long. Silver bounced sharply back into the triangle and now look poised to bust out the upper side.
Once there’s a breakout, that busts the bearish descending triangle pattern.
The key price levels silver has to overcome are $19.60 and then $21.15. So there are still a couple of dollars to go before the triangle is truly busted, but once that $21 resistance is taken out then there’s nothing but blue sky ahead for XAGUSD.
Just like with AUDCAD, there’s an inverted head and shoulders forming. This is a bullish price pattern. Right now silver is trading right at the neckline and also right at the major primary secular downtrend line that’s been controlling prices for many, many years.
Silver will soar if it can get through the next couple of dollars of heavy resistance.
Now let’s take a look at the USDI (the US Dollar Index) which tracks the US dollar against half a dozen of the most liquid major currencies around the world.
We see the same kind of blow-off behavior that we saw in the other instruments, just on the opposite side. Whereas the previous instruments I’ve discussed made new lows before rebounding in the other direction, USDI thrust above its old highs and is now retracing significantly.
That suggests there’s a bull trap in USDI where all the dollar bulls who were chasing new high prices have now been trapped. Not only are prices moving down, I think they’ll keep going.
There’s even a bit of a head and shoulders forming here, and USDI is hanging around its last vestige of support. The dollar is poised to drop soon.
So which pairs are the best bets to take advantage of this?
I think NZDUSD (the New Zealand dollar versus the US dollar) is very promising and of course, there’s my ‘slam dunk’ pair too, which is USDJPY (the dollar versus the Japanese yen).
Let’s examine NZDUSD first:
NZDUSD has been in a long-term downtrend that included a double top along the way to arrest an earlier attempted rally. That downtrend resulted in two major neckline breaches on the way down.
And with the pandemic, we saw the same action as with NZDCAD, AUDCAD, and XAGUSD: prices dropped in accordance with the bearish patterns, but then reversed sharply.
NZDUSD has now broken the first of two major necklines and is close to challenging the second one. It also formed a bullish inverted head and shoulders as it did so.
That suggests the final confirmation of a new bullish trend in NZDUSD will be a breach above the next neckline. There will probably be some resistance here but once that level is taken out, NZDUSD should have a very bullish future ahead of it.
Therefore any dip in NZDUSD is a buying opportunity ahead of future gains.
This next pair does not represent a busted pattern at all, but it’s the one no-brainer currency pair to benefit from a lower US dollar. That’s USDJPY (the dollar versus the Japanese yen):
USDJPY is at the very mature end of its descending triangle right now. There’s not much room left before it indicates which direction it’s going to break out.
But to me, there’s only one direction this can go and that’s down, thanks to the historical head and shoulders with a double top. Plus and a more recent (and emerging) head and shoulders with a double top. Plus the descending triangle itself.
The historical head and shoulders remains the governing price pattern that determines price action going forwards. There are no busted price patterns here at all.
I think USDJPY will test the 104 trading area and then ultimately go lower to parity (100) and then perhaps below that too. However, the pair could trade the rest of the summer in the back and forth trading behavior it’s shown for the last eight weeks.
Despite the lack of decisive price action, I’ve kept my short positions and I’m willing to keep holding them even if USDJPY creeps higher. In fact, I’d look to short more as I feel the USDJPY price action is overwhelmingly bearish.
Considering all the busted patterns I’ve reviewed earlier, you might be wondering if USDJPY will bust all its bearish patterns by making a sharp low before rebounding. I think that’s unlikely. And even if it does happen, then this pair still has to go lower – even much lower – before it goes up to bust the patterns.
Just be patient here on the short side and I believe we’ll ultimately be rewarded.
Every few years, a “sleeping giant” is awoken.
Based on analyzing the markets this week, I’ve discovered the next big “sleeping giant”.
In this week’s video report, I share exactly what I’ve seen as well as the biggest opportunities on the board, right now.
From taking advantage of “Busted Price Patterns” through to the domino effect that the US Dollar is going to cause.
- The monumental “Head & Shoulders” on the NZDCAD that is not as simple as it looks … and how you can anticipate a “Busted Price Pattern” to predict a profitable trading opportunity
- Things are about to move in a big way on NZDCAD, but in which direction? I share all and give you a detailed walkthrough.
- The long-term “Descending Triangle” on XAGUSD that is showing signs of being a severely “busted price pattern” and how you hop on this opportunity
- This trade is the NEXT “sleeping giant” (I explain what is happening and how you can profit from this “giant” – watch from 9.04)
- Why it’s not an “IF” but a “WHEN” will the US Dollar go lower based on THIS exact price pattern (watch from 11.02) and the fall of dominos that this collapse will cause
- Why the US Dollar is weakening and the obscure way that smart traders can maximize their profits from this monumental shift
- Why patience is the most important skill that you can have on USDJPY and why those with nerves of steel will be rewarded in a BIG way.
- What is happening with Gold and Silver? … and why the Gold/Silver Ratio chart highlights exactly where the big opportunities are hiding
- Plus much more
Would You Like to Watch This Weeks Video Report?
I’m conscious that none of us would buy a car without having a test drive, and I feel much the same with our Weekly Video Report.
That’s why I would like to invite you to receive this week’s video report without any form of commitment.
No tricks, no monthly tie-ins, or anything like that.
You can just receive this week’s report as a one-off to experience it for yourself.
You’ll be able to see exactly what’s happening in the market, see what I have my eye on, and hear my predictions on what is going to happen next.
If you find it helpful, then you may decide to subscribe to an annual subscription to receive these all year.
If you decide that it’s not helpful, then at least you’ve experienced it for yourself.
But it allows you to be informed and see exactly what it is without any commitment.
“Pay What You Want” to Receive the Video Report
As I don’t want any time-wasters on this and to ensure that you watch it, I need you to have some “skin in the game”.
That’s why I didn’t want to “sell” this for a fixed fee but instead give you an opportunity to choose how much you would like to contribute to receive it.
There is no minimum and no maximum.
You simply choose the amount.
Once confirmed, you will receive an email instantaneously linking you to the member-only video report.
You can then watch the report and understand why over 1000 traders religiously study this video every week.