A few weeks ago, I titled one of my emails “A Historic Inflection Point” because I felt we were at a pivotal moment in the markets. However, I had no idea how right I was going to be, so quickly.
Since that email the U.S. stock market crashed 37%, the U S dollar raced to new highs, and gold has gone all over the place. I'm going to unpack it all for you in this report, but the key point remains that we’re at a historic juncture across a number of asset classes.
Certainly, the U S dollar is front and center right now as measured by the U.S. Dollar Index (USDI):
USDI measures the dollar against half a dozen of the world’s major currency pairs. And you can see that while oil, gold, and stocks were crashing, investors around the world bid the U.S. dollar to its highest levels since 2010.
However, last week I warned you not to chase this rally. To me, this was a sucker play.
Before I explain why let me tell you a story about ice hockey legend Wayne Gretzky. During his career, one of his team’s games was postponed because there was an electrical outage. The lights went out and so for about 20 – 30 minutes the game was shut down.
The broadcasters went down to speak with The Great One and asked him, “Wayne, you're not the strongest player out there. You're not the fastest player out there. What's your secret? Why have you got all the records? Why are you able to do the things you're able to do? Why are you able to score the most goals even though your physical attributes aren’t at the same level as some of your colleagues?”
Gretzky summed it up with a quote that was perfect for him and perfect for trading too.
He said, “I don't skate to where the puck is. I skate to where the puck is going to be.”
So how do we as traders know where the puck is going to be?
Well, that’s the beauty of charts and price patterns to establish your perspective. This is also why I rail against looking at short-term charts, meaning 5 minutes, 15 minutes, one hour, even 4-hour charts. You can’t establish and maintain a historic perspective with such short-term views.
That’s why when the dollar was racing up last week, this seemed like a large trap to me.
On this weekly chart (I’m repeating it again here for ease of viewing), there are now two peaks in the same area.
Plus with last week's price action, USDI crashed and closed below the low of the most recent peak from 2016. So not only is there a double top, this also looks like a bear trap where anybody who bought above the breakout area is now trapped as the dollar reverses.
I’ve been told throughout my career that you can’t identify tops or bottoms, but I would politely disagree with that.
To my mind, when a market reverses, it always establishes a pattern. Then within the pattern, there’s supporting price action, such as the inside bar that was formed last week.
(By the inside bar, I mean that the most recent bar’s high and low is contained within the high and low of the previous week.)
So, there’s an inside bar in USDI right now, just where prices collapsed at a major reversal. Future price action will tell the story, but I’m getting the sense that we’re looking at a major reversal in the U.S. dollar right now.
To show you how it’s possible to anticipate major turns in the market based on price action. Here’s an email I sent to our Elite members last Wednesday:
EURUSD (the Euro against the U.S. dollar) was trading a hair under 1.09. I recommended putting a buy stop on this pair at 1.0897.
Yet EURUSD had crashed from 1.15 all the way to 1.06. How was it possible to see a turn here? I looked at the price action which included an inside bar and I said that while it was an early call, I felt a major top in a 10 year long a dollar rally was in and therefore a strong EURUSD bounce was due.
I felt we were in the early stages of a major double bottom in EURUSD and that any penetration above the inside day bar could result in a massive move to the upside.
That was then, this is now:
After I alerted our Elite members to get in at 1.0897, the market exploded and closed 240 pips higher at 1.1142. I think there's a lot more upside in this currency pair so we’re not exiting our position yet.
In the same email that recommended buying EURUSD at 1.0897, I also suggested putting a sell stop in USDCHF (the U.S. dollar versus the Swiss Franc) at 0.9745 on the same premise of an emerging dollar top.
That was then, this is now:
USDCHF has crashed to give another 240 pip gain.
That means we’ve racked up nearly 500 pips in unrealized profits by shorting the dollar in those two trades.
We also bought GBPUSD (the British pound versus the dollar) for another 250 pip gain but I think you get the point by now.
Let’s step back and take a look at the big picture because the perspective is very important. Here’s the USDI over the last 45 years:
Most recently you can see the double top that’s visible in the weekly chart I showed you earlier.
But this helicopter view now helps you see why I was so confident about a major turn in the dollar despite the fact USDI has been rallying for the last 10 years.
Note the pattern of lower highs in the dollar to create a descending triangle. This is a very bearish pattern.
And then in the most recent high (much lower than the earlier high in 2000), we had a double top as well. That suggested USDI was at a major resistance area.
Now there’s a culmination of events where the U.S. government and the Federal Reserve have turned on the printing presses and delivered a huge injection of the stimulus. We're going to have up to $10 trillion of stimulus coming out of the U S reserves and maybe more to come.
While I’m not an economist, when you turn on the printing presses and print dollars willy-nilly then it begs the question of what those dollars are worth.
That’s why the next trajectory in the U.S. dollar is likely to be down for the next several years.
Another key point: note that when the dollar picks a direction, it goes in that direction for many years. From 1975 to 1982 (seven years) the dollar rose. Then from 1985 to 1995, it went 10 years in the other direction. Then from 1995 to 2000 (another five years), it went back up, and so on.
So if you think you've missed the dollar drop, if you missed my trades last week — don't worry about it. I think you're going to have lots of opportunity to short the dollar for the next 10 years.
I don't think it's going to be pretty, but that’s what the chart is strongly suggesting to me right now.
So forewarned is forearmed. While other people are scratching their heads because they didn’t see this happening, you now have some compelling evidence for a huge opportunity going forward.
A couple of weeks ago, I sent you an email about “the historic reflection point” in most of the asset categories.
A few short weeks later, with these unprecedented times, this is becoming more and more true.
The US stock market has crashed 37%, the US Dollar has raced to new heights, and Gold is all over the place.
In my recent member-only ‘Weekly Report’ [recorded 03/27/20] – I unpacked everything that’s happening and share what I believe is going to happen next.
- Former Ice Hockey player, Wayne Gretzky famously said that “I don’t skate to where the puck is, I skate to where the puck is going to be” – the trading lesson that you can take from this during these interesting times
- The exact ‘Elite’ email that I sent to members with my unexpected prediction (that nobody would have expected yet has upset the odds!)
- How I predicted the major double-bottom (bull) price pattern in the EURUSD (and the explosion that has happened since).
- The ten trillion-dollar stimulus that is going to crash the US Dollar (based on a helicopter view of the Dollar Index over the past 50 years (watch from 8.33)
- The 1000 pip trading weeks in the GBPUSD and why I believe a big change in direction is going to happen (but what I’m waiting for before “releasing the hounds”)
- The unambiguous 45-year downtrend of the USDJPY that is showing a very clear descending triangle (I share what will happen next) – watch from 16:04
- The “Gold/Silver Ratio” that is above 50-year highs (and why this can be compared to the ‘Great Depression).
- The craziness that is happening with Gold and what I believe is going to happen next (but why I’m not getting involved in this trade, right now).
- How big could the NASDAQ crash be? How you should be assessing your risk to stack the odds in your favor.
- Plus much more
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