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Mark Thiele

Currencies and Dow - The Big Picture

I thought I'd have a look at some really long-term charts of the currencies and stock market to get a different perspective. Just a brief comment on each.These are monthly charts so not easy to trade off.

Aussie Dollar

Whilst in the short term the Aussie looks like wanting to pull back a bit as per my previous post, the whole move down from the 2011 high at 1.1000 looks corrective and is contained within a downward sloping channel. So watch for a break of that channel to signal if a major upmove probably beyond 1.1000 is getting underway. This would have to coincide with a collapse of the USD and a commodity boom.

Euro

It's been a long wait since the 2008 top in the Euro. We've really gone nowhere for  5-6 years and I feel the whole move is corrective to the next big upmove to new all-time high. I'd expect that if the downtrend line I've shown on this chart is clearly breached we'd be looking at a 40 big figure move which would eventually take the Euro to the 1.80 -2.0 level. This would coincide with my view that although the USD will have some short-term strength soon, the end game will be a USD rout.

Dollar Index

The US Dollar index probably gives the clearest picture of the consolidation that's been going on since the 2008 financial crisis. The Federal Reserve through its massive money printing has only just contained deflation and that slight deflation has kept gold down and the currency up or sideways anyway. There is probably still a little USD strength left which may try for the top of this symmetrical triangle.

However I suspect the USD will eventually break downside out of this for it's final calamitous nosedive as people exit the Buck in droves realising it is becoming worthless with still billions of dollars being printed every month even with scaling back. Massive inflation, even hyperinflation will still eventually be the result of the Fed's excess and they will be powerless to stop it or to hold back the tide of USD sellers. Will they raise interest rates to defend the dollar and thereby killing the domestic economy and the stock market even more?

Where the final bottom is I'm not sure. It could be terrifying involving the US government defaulting on worthless bonds, the stock market tanking 90% and gold ( after first going down to $1000 or so, making new highs.

So watch for a break of this triangle. It could break upwards I admit so that would mean the game has changed for some reason and I wouldn't stand in its way.

British Pound

 I've been fighting this market for a while. I had thought Cable had broken down out of a triangle in 2012, and it did go a little way. however there was not only no follow through but the market has reversed and pooped out the top instead causing me to re-draw the triangle with a new bottom line,

I know Elliott wavers are still calling this as a correction to a bigger downtrend but I've changed horses and now favour the upside long-term. Sure we could get a pull-back to the breakout, and in fact I think it's likely , but the bigger picture suggests a retest of the 2007 highs around 2.000 to me. A clear break of previous highs and the channel Cable has been in between 2.00 and 1.400 could see the market making new territory all the way up to 2.50 to 2.60. If the USD collapse I think is coming happens then this is quite possible.

Silver

 I've always expected Silver to still get down to the $15 level which is an obvious level of next support. The triangle top it dropped out of in 2013 still suggests that, and a break of recent support at around 18.50 would see $15 in pretty quick time I imagine.

Longer term I can see the possibility the whole move from 2011 has been corrective and a break up through the channel I've drawn would signal the runaway inflation phase of certainly the US economy, but probably the developed world too. There would then be a strong argument for new all-time highs above $50 and who knows where above that. I think there needs to be at least one more shake out in silver and gold to clear the remaining weak longs before the serious investors move in.

Gold

Not surprisingly Gold looks similar to Silver and I'm expecting a break to new lows to around the $1000 mark before any uptrend resumes. That would fit nicely with a retest of the lower boundary of the channel I've drawn above. A break above this channel would signal a resumption of the Gold bull-market  probably to new highs courtesy of the Federal Reserve printing press and rampant inflation once the next deflation phase completes.

New Zealand (Kiwi) Dollar

 And the Kiwi has just broken up out of a symmetrical triangle which has been developing since 2011. As long as it doesn't fall back inside this the Kiwi looks destined for somewhere near .9200 and maybe even parity with the buck if the USD collapse ensues as I suspect.

Dow Jones 

I've always expected the Dow would follow the NASDAQ eventually and lose 90% of its value. That would many a Dow around 2000. The broadening formation I've drawn above could be showing how that could happen. Just kissing the top line I've drawn on the chart, if the Dow were to put in a top here, and the US dollar collapses, I'd fear the 2000 level is a real possibility. Of course until the market shows a valid technical topping pattern we still have a bull market, but I think we are at a very important juncture here with the rise from 2009 lows fuelled only by the Federal Reserve printing press. In effect the wealth of middle Americans has been eroded to keep the stock market and big banks afloat. If it all starts to unravel there will be nowhere to hide. Printing more money will only exacerbate the situation. The Fed knows that and must be scared to death.

Aussie upthrust reversal traps bulls

In a previous post I'd been talking about watching for a breakout of a resistance level in the Aussie dollar above the line shown above. We seemingly got a strong close above this but then sharply reversed.

This looks very much like an upthrust reversal pattern. A market breaks higher through an area of congestion but fails to follow through and smartly closes back inside the original pattern. Sometimes breakout patterns fail and traders need to be quick on their feet to exit if something like this happens and even contemplate reversing their positions. At the time of writing this the Aussie has closed in New York but should it remain back inside this pattern then a re-test of the 0.9200 level looks on the cards. A break of that would signal a new downtrend.

Aussie dollar updated

In my previous Aussie dollar post I'd put a watch on a break out of a triangle pattern which seemed to be developing. The Aussie broke upside with a close at .9381 on June 11th and continued strongly for a couple of days as it approached a recent high.

However, I admit to being disappointed at the ensuing pull-back. I would have expected this to hold above the upper boundary of the triangle but today's close gives cause for concern. Sometimes market do slightly creep back inside formations before taking off again. The Aussie would need to show signs of quick recovery from here for me to regain confidence. I think it wiser to stand aside though and await a confirmation above a new upper line drawn above and being at the level of last week's .9435 high.

The alternative is that we are going to re-test the .9200 level. AS I said, disappointing this hasn't followed through on the upside but sometimes patterns do fail. I have to admit I've always been a bit sceptical of upside breakouts from flat bottom triangles. They are more often a bear market pattern.

But let's wait and see what develops now. The important levels are still close and I'm sure another opportunity will present itself soon.

USDJPY next move worth the wait

Looking at the long-term chart of USD/JPY the trend is still solidly up. The original head and shoulders pattern  broken in late 2012 well and truly reached its target. The large symmetrical triangle of 2013 broke upwards and should have reached 109.00. It hasn't yet made it.

That makes me wonder if the triangle now forming between 102 and 105 is going to be a continuation pattern for a push up to this 109 level.

Of course a break and close below 102 and I'd consider shorting for a move down to the 99.00 handle.

So as with Gold and the Aussie dollar the setup is there for the patient trader. Don't get too caught up in the daily noise when the better percentage plays will come.

Gold - here we go again?

It's easy to get tied up in the day-to-day or even hourly charts of gold, but when you stand back a bit the important long-term levels become clearer.

The past year looks remarkably similar to the top formed by gold 2011-2013. Now not exactly the same of course but a descending triangle of about half the size of the one which preceded the carnage (predicted by this blog) which occurred when gold broke it's support then.

Since June 2014 spot gold has been forming what also looks like a descending triangle with a support level around $1180. The lower highs indicated the most likely outcome of this formation. A decent break and close below $1180 should see another $200 fall in gold to at least the $1000 mark. A break above the falling trendline, currently around $1360 can't be ruled out of course and pre-empting either of these moves would be foolish. Better just to sit back, be patient and wait for the break. In gold you do have to be incredibly patient.

Although smaller patterns do provide shorter term trading opportunities such as the recent April/May symmetrical triangle which has pretty much reached its objective. Remember you don't always have to be in the market.

Silver also shows a similar pattern.

Aussie Dollar at important juncture

The Australian dollar sits at an important juncture at the beginning of June 2014. The important levels to watch for the next major move are clear. A flat bottomed descending triangle has been forming since early April giving traders a delicious opportunity from a technical analysis purists point of view. More often than not a descending triangle breaks the lower boundary and then proceeds in that same direction for at least the same width as the triangle itself - in this case close enough to 2.6 cents from what the breakout would be.

The breakout point is somewhere between .9199 and .9205. A clear break and close below this level is needed. Sometimes a market will break a level but not close below it casting doubt on the move.

There is also the possibility the Aussie breaks the upper descending line and continues up for the same distance. The breakout point depends on timing and where the line is as it continues to descend.

Either way this is one to be patient on and wait for the market to show you. If you can't wait then options could be the way to go - buying a put and a call just outside the current range.

Notice the current resistance occurred at a previous support level formed by a nicely symmetrical head and shoulders pattern in the September to November period in 2013. The downside count for this was fulfilled nicely at the .8770 level.

Gold Breaks Falling Wedge Pattern

Recently Gold broke upwards out of a classic Edwards and Magee style falling wedge. Often these patterns retrace with a rounding down towards the breakout but the strength of this move not waiting around for that only emphasised this advance means business.

The upside target of the falling wedge is the point where it started. In this case that's $1433 in spot gold. That's the minimum target. Another possible scenario is that the larger picture is forming a head and shoulders bottom with a neckline as shown above with a breakout currently around 1410. should the 1433 point be breached decisively that would imply a further approximately $280 rise to around $1700. I have to admit my view has been that gold is in a longer-term bear market but breaks of 1410 and 1433 would certainly change my view if sustained.

Volume and open interest appear to be increasing as the market rises which is another sign this is a market accumulating longs not covering shorts.

NZ Dollar false breakout

Well not all trades work out and this one certainly failed. The Kiwi only managed a small close above the head and shoulders pattern before reversing. That's why you have stops. Not all chart patterns come to fruition and I've had to admit defeat on this one. We await another formation. In hindsight I should have waited for more of a clearance on the breakout.

New Zealand Dollar breakout alert

The New Zealand dollar (Kiwi) has broken out upside ( triangle or Head and Shoulders pattern) with 85.80 now the target. Protective stops should be at 79.30.

New Zealand Dollar Breakout Watch

It's hard to tell if this is Triangle or a Head and Shoulders bottom formation. Either way we now have clear boundaries to watch for a break-out. The strength last week in the face of potentially damaging fall-out from the Fonterra (one of NZ's biggest exporters) China milk contamination scare was quite impressive and left the shorts scrambling to cover.

The momentum slowed a little towards the end of the week as the Kiwi approached the upper end of this formation.

A close above the 81.00 cent level would be an invitation to go long with a target of around 85.80.
Of course the other alternative is a resumption of the recent downtrend, and a close below 76.50 would suggest a move to the low 70's near 72.00 cents.

The patient will  wait for a breakout either way. I stress though a New York close outside the levels mentioned is needed. The Kiwi and Aussie have a history of making daytime breaks before closing back inside formations.

British Pound Bear Rally Before Next Plunge

Cable broke down out of the large symmetrical triangle I'd been watching with a convincing clearance. The strength of the subsequent rally surprised me but I'm convinced it's a bear market rally as just the start  in a much bigger downside move for the Pound.

My target for GBP/USD from the breakout is 0.3500 lower from the 1.5700 level where the triangle was first pierced. That's gives me a possible downside of around 1.2200 depending on where one measures the width of the triangle.

How far this current rally goes I'm not sure. A 50% rally from the breakout takes us back to 1.5600. A possibility. I'd watch for a break of the flag formation from the 1.4835 as shown on the chart for a sign the rally is over.

Remember I'm not a financial advisor so you should contact a registered one before making any trading decisions. Always trade with stops.

Aussie Dollar Patience Will Be Rewarded

One of the trading skills I've still to master is patience. Too often I've tried to jump into a market too early or taken profits too soon. As  a long-term trend trader patience is essential.

For a trend trader the AUD/USD ( much like GBP/USD did)  has tested the patience for a painful length of time. But I'm sure my patience will be rewarded when a break of the bboundaries in the above chart finally happens.

First will come a break of the more recent 1.0600 to 1.0200 range. An initial 4 cent range can be expected on a clear close outside this range. I don't know which way. It's not the way I trade. I try not to pre-judge. So on a break the minimum targets should be either 1.1000 or 98.00.

A much bigger move is possible if the larger symmetrical triangle shown is broken. At the moment the boundaries of the triangle are roughly 98.00 and 1.0500. So the upside boundary is so close to the rectangle 1.0600 that I think you'd just go with the 1.06 level as the breakout point. Interestingly the Aussie did break out just above the triangle to about 1.0580  for 2 days a few weeks ago but failed to close outside it for the week. The proximity of the 1.0600 and non-clearance of it would have served as a warning.

Using the larger traingle formation, a clear break of its boundaries would signal a possible hefty 16 cent move to either 1.22 on the upside or 0.82 on the downside.

Remember I'm not a financial advisor so you should contact a registered one before making any trading decisions. Always trade with stops.

More Carnage Ahead for Gold

In June I warned of the potential downside break of a descending triangle in spot gold. In April that has finally come to pass. Even though there has been a huge fall after breaking down through the 1525 level I'd be surprised if it's all over yet. There's been a strong rally off the 1300 level but it smells of a dead cat bounce to me. Just how far this rally goes I'm not certain. Potential exists for the market to test the breakout at 1525 but the rally has already been quite big. As long as the rally stops at 1525 or lower I believe we will see a retest of recent 1300 lows and a break of that  further down to at least 1250.The 1250 level would be the width of the rectangle within the Gold triangle ( 1800 to 1525 or 275 points) from the 1525 That would be the minimum I'd expect.

If we accept that the larger descending triangle is valid then the downside target is more like $1120 ( give or take a few dollars). Again that is the minimum downside count from a descending triangle. It could go lower but you'd look at taking profit there if still short.

Only a close above about 1530 would have me thinking the targets have failed. Silver has a similarly bearish count and I would be surprised if I didn't see $16 before this correction is over.

Bear in mind I'm not a financial advisor so talk to one of those before making any trading decisions.

"Diary of a Professional Commodity Trader" - 2nd best ever

Diary of a Professional commodity Trader - Number 2 trading book ever





All technical analysis traders have heard of Technical Analysis of Stock Trends by Edwards and Magee, and many consider it the "bible" of pattern trading.

I've been trading markets for almost 30 years and I still refer back to Edwards and Magee.
Until now I'd considered the second ranked trading book to be "Trading for a Living by  Alexander Elder, followed closely by "Reminiscences of a Stock Operator". But I've just bought myself a traders book for Christmas which I now consider sits firmly at number two.

If you trade using charts, and particularly use pattern recognition, then you must read and keep in your library,  Diary of  a Professional Commodity Trader by Peter L Brandy. It was published in 2011 but I hadn't come across it until now. I don't know Peter personally, I just commend him for what he has produced and recommend his book to serious traders.

See just some of the comments about the book below:

"We've all read about the high rollers who go boom and bust, but this book is different. Packed with straightforward prose, practical knowledge and honest counsel, Diary of a Professional Commodity Trader delivers far more than the title promises. Peter Brandt methodically explains what no one has before: how a dedicated individual can trade for a living. If that is your destination, this is your ticket. "
- Robert Prechter, Elliott Wave International


"This book is insanely great. The refreshing clarity this book brings to the table is brilliant. I think this is an amazing, excellent book, one that could help a whole new generation of traders."
-Jack Sparrow

"This is the most honest trading book of the last decade. Peter tracks recent trials and tribulations on his path to success dating back to the 1980s. He shares numerous insights into the emotional and technical challenges of trading, right down to his track record over the years. Peter candidly documents a recent trading period. His ultimate success reflects the importance of staying true to a process while still allowing flexibility to modify rules as market conditions change. Anyone desiring longevity in the business really needs to read this book."
- Linda Raschke, trader, President of LBRGroup, Inc., and co-author of the best selling book, Street Smarts-High Probability Short Term Trading Strategies.

EUR/USD long-term trend change

EUR/USD looks to have made a long-term trend change to the upside. A likely Head and shoulders bottom sets the potential for a rise to at least 1.4200. A clean upwards neckline break 3 weeks ago looks valid although the right shoulder is a little unsymmetrical in comparison to the left shoulder. A move back inside the neckline and certainly a fall below the right shoulder would invalidate the bullish view.

A pull-back to the 1.3130 to 1.3160 level is possible an would be a buying opportunity with stops below the right shoulder.

USD/JPY Bullish long-term

If you trade long-term then USD/JPY provide the opportunity 3 weeks  ago to take a bullish stance for a large upside move.

USD/JPY finally broke up through a massive head and shoulders bottom formation with a weekly close above a neckline at 83.50. This invalidated the possibility that action since early 2011 had been a triangle continuation. It coincides with the BOJ putting the money printing presses in high gear which never bodes well for a currency's value.

The minimum upside count from this formation is around 92.00. It looks due for a bit of a correction in coming weeks though with a key reversal on Friday signalling a probable short-term consolidation. A possible downside target is firstly 85.00 and at the outside 83.00 the original breakout point of the H&S. So best to wait for the consolidation to play out and wait for a breakout from that for a resumption of the bull trend.

GBP/USD set up for next big move



GBP/USD June 2012

It's been a long drawn out process but Sterling looks to be close to breaking out of a large symmetrical triangle which has its origins back in January 2009. GBP just hung on to the lower boundary a couple of weeks ago, slightly breaching it during the week but recovering to close above the line.

Which way will it break? Best to just wait and see. I'm favouring the downside. The selling of the past couple of months was heavy and I don't think that momentum has ended yet. Another sell-off would most likely see the lower triangle boundary tested and breached.

The move either side of this triangle will be one worth being on. On the downside I'd expect the 1.3500 level to be revisited and I can make a case for 1.2200 should that support level fail. An upside break would imply a retest of 2008 resistance/former support levels in the 1998-2000 area.

Gold Descending Triangle Potential Bear Warning

Daily Spot Gold

Since topping above $1900 in early September 2011 Gold has eventually formed what looks like a very large descending triangle. Sometimes these patterns break on the upside but much more frequently the flat bottom and downward sloping upper trendline pattern eventually breaks to the downside.

Should Gold clearly break below $1520 the downside target is massive. The distance of the move is usually the width of the triangle. For Gold that would mean close to a $400 drop to around the $1120 to $1130 region. And that could happen quite quickly.

Fundamentally it's very hard to find many Gold bears out there which makes the potential for a large fall even more likely as the speculative market is long to the gunwales. I also very much favour a much more severe deflationary environment still to come before any reflation emerges.

Kiwi Triple Top Danger

The Kiwi (NZD/USD) has formed what could be a triple top. Three drives to make new highs have failed around the same level (8420-8470). The critical support level to watch is the 8240 to 8260 range. A daily close below that range would signal a possible large decline with no significant pull-back in the kiwi having occurred since December.

This pattern could also be viewed as a broadening formation - each top is slightly higher than the previous one. The base is slightly upward sloping from February but the downside implications are the same. A close above the upper line would negate the bearish scenario. The target on a downside break is at least 2cents but will often be much more.