Yes, I’m betting heavily on the long side of my current favorite stock in the U.S. stock market.
I’ll give you all the details in just a moment.
But first, I need to outline why I’m at least temporarily shifting my focus from forex trades to stock trades: summer doldrums.
The forex market quite often goes into a kind of summer hibernation during the warmer months here. Sideways action is the rule and we see few of the truly big trends, interesting patterns or other movements that I love to wait for — and capitalize upon — for big profits.
I’m not ignoring the forex market over the summer. In fact, I’ve made several key predictions on major pairs you should be watching.
But it’s unlikely I’ll be making any big trades like the ones I’m making in the stock market for the next month or two.
So what kind of environment are we seeing right now?
In his comments following the FOMC interest rate hike last week, Fed Chairman Powell took a decidedly hawkish tone. He indicated there would be four interest rate hikes in 2018. (We’ve seen just two rate hikes thus far).
The Fed comments, combined with a dovish tone from the ECB, were fuel on the fire of an already bullish USD. The dollar regained the upward momentum established several weeks prior.
Once FX trends settle in, they typically last for several months or years. And so far it feels like the emerging rally in USD will not be an exception.
I expect it will continue for a long time … albeit with some pauses and consolidation along the way.
That being said, the summer doldrums really are here. Forex market price trends and momentum generally don’t follow-through during the typically range-bound summer period. So while I expect USD to continue higher, I would not be surprised to see side-ways trading price action as we head into July and August.
Here’s how I see the dollar for the next month or two:
There’s a potential inverted head and shoulders forming right now.
And for the right hand shoulder to look anything like the left hand shoulder, that means consolidation for awhile.
After that we’ll likely see a rally in the latter half of 2018.
Note that at this time last year I was quite bearish on the dollar due to an earlier megaphone top pattern. The USDI broke the neckline of that pattern early this year and then couldn’t follow through.
It instead reversed higher following an H-bottom made at the beginning of 2018 and the entire bearish scenario has shifted to one of extreme bullishness, albeit with a pause during summer.
To that end, I would look to short rallies in USD pairs, especially AUDUSD (the Australian dollar against its U.S. counterpart).
With AUDUSD there’s been a long term downtrend in place for awhile.
Late last year and early this year, the pair formed a double top at the 0.80 price level. Which was also a high way back in 2015 too.
Since the double top, we’ve seen a decline to the neckline area where the price is kicking around right now. Eventually, AUDUSD should decline again in the direction of the primary trend. That is, down.
Look for a break below the neckline and then consider shorting any rally. For now, just stay on the sidelines here.
I also favor the price action in several other forex pairs such as USDCAD (the dollar against its Canadian counterpart).
Look to go long USDCAD upon any return to the neckline it penetrated so decisively last week.
There’s no rush, though. The summer doldrums are likely to spell more consolidation for awhile before USDCAD eventually trends higher once more.
I’d also consider going long GBPNZD (the British pound against the New Zealand dollar) as opportunities permit.
After forming a double bottom in 2016 – 2017, GBPNZD has been on a definite uptrend.
Right now it’s shifting around in a bullish ascending triangle pattern. I expect sideways action as the pair works its way through that triangle, followed by an eventual break out to the upside.
Spot gold (XAUUSD) is also worth keeping an eye on despite summer sluggishness.
I’d be looking to short XAUUSD based on what the weekly chart is showing me.
There have been repeated failures to clear out the strong resistance at 1380. And the little triple top we’ve seen recently had its neckline broken over a month ago.
Since that time, XAUUSD has failed to rally back over 1300, so the next movement is likely to be down again.
In fact, because last week’s key reversal closed at the low, the next bearish target is the lower edge of the ascending broadening formation I’ve drawn for you.
I expect XAUUSD to fall to at least that line. And if that breaks, then we’ll see a serious fall from there. Just be patient about picking entry points.
Now let’s talk about the stock market.
Because the forex pairs are likely entering their no-fun, hard-to-profit-from consolidation phase over the summer season, I’ve increasingly (and very successfully) been applying my price action and price pattern trading methodologies and strategies to the US stock indices, common stocks, and options.
The most compelling opportunity I see right now is the common stock of MELI (Mercadolibre).
I’ve strongly suggested buying this stock on the basis of an emerging H-bottom (also known as a horn bottom) price pattern.
An H-bottom is formed with 2 large spikes separated by small trading ranges in between. It’s not a common pattern, but when it does appear the results can be very impressive.
(Take a look at the U.S. Dollar Index chart at the start of this article for a good example.)
The best place to buy was right after the H-bottom first appeared — I’ve drawn a little red circle where I got in.
However, it’s not too late to profit from what I expect to be strongly bullish MELI action.
That’s because I’m expecting a move to the 360 area once it gets past 300.
The way to get in on this trade with a minimum of risk is with a buy stop at $298.50.
See how the most recent bar is a bullish key reversal? That’s where the price dips sharply and then closes near the high. That’s often a great indicator that higher prices are imminent. So wait for a break higher with a buy stop and use that for a promising entry point.
Now take a look at how strongly I believe in a near-term move in MELI:
Yes, I’m betting a big $2.48 million of my own money on the prospect of significantly higher MELI prices in the foreseeable future.
H-bottoms are powerful patterns and my price action and price pattern methods work just as well in the stock markets as in the forex markets.
That’s why I’m continuing to plan a stock trading subscription service around this idea. There are still a number of details to consider and I haven’t definitively decided on anything yet. Your feedback would be appreciated.
Because if I do decide to launch a product around the idea of getting a jump on stock earnings, I’ll hold a webinar to inform you about my strategies and send you an invitation.
In the meantime, you can “get the jump” on that potential future announcement by booking at spot at my LIVE 2-Day Bootcamp where I’ll demonstrate exactly how to make trades just like the ones I’ve outlined here, including my “Lazy Trader’s” 5-step execution plan. That’s the one I’ve used to pull in more than 9,000 pips in FX last year and highlight the potential winners I’m showing you today.
Remember, these exact same patterns show up just as profitably in the stock market too.
And it’s never too early to learn just how well my methods work in the stock market even if things are projected to be a bit quiet there for the next little while.