It has been awhile since I have posted on the web and thought this was an
appropriate article to share. This article focuses on technical analysis of
3 currencies and the US Dollar Index. A lot of the technical indicators I follow
are universal, but the way in which they are modified and put together will
not be found anywhere else. Developing the Contracting Fibonacci Spiral and
the inverse chiral inversion that happened last summer have played a role in
the forecast of this article. As unbelievable as the forecast may seem by time
the end of this article, there is a significant amount of logic that went into
this and may even defy logic. There is a mathematical basis to this pattern
and hopefully it will be understood somewhat by the end of this article...
The US Dollar Index has changed its pattern and has confirmed a number of
trends discussed over the past few months. I have spent a lot of time reviewing
the US Dollar Index this weekend, due to it remaining under pressure and failing
to break higher. The Elliott Wave pattern I was following had the longer term
pattern fail due to not breaking higher...This has repercussions for everything.
For one, gold and silver are likely to remain in an uptrend for longer than
anyone may think...the last update I stated suggested 2-3 months...this could
extend into next year, depending upon how the downtrend of the US Dollar Index
progresses. The HUI/Gold Ratio is in an uptrend, so holding or adding to precious
metal positions is still in effect.
Oil is again over $100/barrel and if it closes above $101/barrel, then it
is going to $111 within 6-8 weeks, followed by a move to $130-140/barrel within
8-12 months. Once oil closes above $101/barrel on a daily basis, oil is locked
into an uptrend, which will drive energy stocks higher. Conservative investors
should look to enter positions once this trigger becomes activated.
Also, I have been thinking more about what the Chiral Inversion of the Contracting
Fibonacci Spiral and what that means. From everything what I can fathom at
this point in time, things are going to really move higher between now and
Q2-Q3 2015. The CFS had a series of higher lows from 1932 until 2013, which
had a series of higher lows. The chiral inversion of the CFS that happened
last summer implied a reversal to this trend. A cycle low is expected sometime
between Q2-Q3 2016 and suggests a series of lower highs from 2016 until 2020.
The following time points are required to complete the CFS sequence after 2016:
2, 1 and 1. Two years after 2016 is 2018, which is the next expected cycle
low, followed by 2019 and 2020. The 2020 low should mirror of the amount of
time taken for the 2019 leg. As we reach the point of singularity in 2020,
the volatility of the cycle will only increase.
So, going short at the right point in time during 2015 will be critical, because
between now and then, many people are going to get burned and will not even
want to try shorting anything again. At the 2016 bottom there should be a very
powerful rally that lasts into 2017/early 2018, followed by another crash into
mid to late 2018. Knowing the information above is going to be very critical,
because a lot of money will either be made, or lost during this period of time.
I have a lot of updates to do this week to get back on track after spending
too much time on this side analysis and thought process for how things unfold,
but viewed this as a more important step. It is important to anticipate the
hypothesis and continue to alter it and make the required changes to fit the
model as time progresses. This is what Science is about...forming thoughts
around a number of observations and extrapolating the thought into abstract
form to model future experimentation. In our case, the field testing of our
hypothesis is the market and because time only travels in one direction, we
can not repeat the experiment. We can look back at history, but alas, it too
only has one path.
One final thought...if the US Dollar Index is going to go down, then commodities
are going to rise, which should in turn raise the value of the Canadian and
Australian currencies going forward. It appears that Q2-Q3 2015 is going to
represent the cycle low for the US Dollar, which should rise during the deflationary
bought expected after this point in time.
Based upon this analysis, a list of gold and silver stocks to consider will
be posted this week. Hint...most of these are one's that I have covered in
the past, but a few new one's will be discussed over the coming week's.
Currencies
The daily chart of the Canadian Dollar Index is shown below, with lower Bollinger
bands beneath the current price, suggestive that a bottom was put in place.
Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K
above the %D in all three instances. Extrapolation of the %K trend in stochastics
1 and 2 suggest at least another 2-3 weeks of further upside before a top is
put in place. I will post the monthly chart of the Canadian Dollar Index next
week, which suggests the upward trend could last into next year. The Canadian
Dollar has been in a down trend for over 18 months, so a bounce is expected.
Figure 1
The daily chart of the US Dollar Index is shown below, with upper 21 and 34
MA Bollinger bands in close proximity to each other with rising stochastics,
suggestive that further sideways to upward price action is likely. The lower
21 MA Bollinger band is beneath the 34 MA Bollinger band, suggestive that an
oversold condition is developing. Full stochastics 1, 2 and 3 are shown below
in order of descent, with the %K above the %D in all three instances. Extrapolation
of the %K in stochastics 1 and 2 suggest at least another 2-3 weeks of further
upward price action before a top is put in place. There is a noticeable positive
divergence between stochastics 1 and 2 relative to the price action of the
Aussie dollar, suggestive that further upward price action is pending.
Figure 2
The daily chart of the Euro Index is shown below, with the lower 21 MA Bollinger
band beneath the 34 MA Bollinger band, suggestive that an oversold condition
is developing. Full stochastics 1, 2 and 3 are shown below in order of descent,
with the %K above the %D in 1 and beneath the %D in 2 and 3. There are numerous
levels of resistance between 137 and notably at 138, which had an island top
put in place in late 2013. If the Euro can close above 138.3 on a daily basis,
then an inverse head and shoulders pattern becomes activated, with an upside
price objective to 143. A series of higher lows in the Euro have been put in
place longer term since August 2012, providing no indication that a top has
yet been put in place. The %K in stochastic 2 has yet to curl up, so the upward
trend in the Euro could last 4-6 weeks before any sort of a top is put in place.
Figure 3
US Dollar Index
The daily chart of the US Dollar Index is shown below, with upper Bollinger
bands in close proximity to each other above the current price, suggestive
that further sideways to downward price action is likely. Lower 21 and 34 MA
Bollinger bands are in close proximity to the current price, suggestive that
further downward price action is likely Full stochastics 1, 2 and 3 are shown
below in order of descent, with the %K beneath the %D in 1 and above the %D
in 2 and 3. Extrapolation of the %K in stochastics 1 and 2 suggest at least
another 3-4 weeks of further sideways to downward price action before a bottom
is put in place. I have a lot of further technical information I could comment
on, but have saved it for the short-term Elliott Wave count chart, as most
of the technical information is better displayed there. The minimum downside
for the current move is 79.0, which could happen within 2-3 weeks.
Figure 4
The weekly chart of the US Dollar Index is shown below, with Bollinger bands
providing no indication of trend. Full stochastics 1, 2 and 3 are shown below
in order of descent, with the %K above the %D in 1 and beneath the %D in 2
and 3. Although the %K in stochastic 1 is up, it appears the %K in stochastic
2 has curled down to match that of 3. The sideways consolidation of the US
Dollar Index has been in effect for over 2 years now, so a break to the upside
or downside is looming. A close below 79.0 signals much lower levels for the
US Dollar Index, while a move above 81.7 signals a move to the upside. There
are two head and shoulders pattern from 2012 until present (Refer to Figure
8) that have a unique thing happen if a close below 79.0 occurs. The first
pattern was negated, but was followed by a second pattern, which doubles down
the downside... 3 cents per pattern times 2 equals 6 cents. A break below 79
suggests a move down to 73.0 at minimum...more on this in Figure 8. Although
the last two charts of this update contain Elliott Wave analysis, I highly
recommend reviewing the commentary because the structural information was used
to develop the retooled Wave count.
Figure 5
The monthly chart of the US Dollar Index is shown below, with Bollinger bands
not providing any indication of trend. Full stochastics 1, 2 and 3 are shown
below in order of descent, with the %K beneath the %D in 1 and above the %D
in 2 and 3. Extrapolation of the %K trend in stochastic 1 suggests at least
another 6-8 months of further sideways to downward price action before any
sort of a top was put in place. Over the past 6 months, we have been looking
for a breakout of the two year sideways trading pattern, whether it be to the
upside or downside. Referring to Figure 7, it is clear that the trend is about
set to break lower, even though the US Dollar is up on this Monday, February
17th, 2014. A decline in the US Dollar fits with a rising stock market, as
well as commodities. A decline from 79.0 to 73.0 represents a loss of 8% purchasing
power, which taken from the S&P 500 Indices current value of 1839 becomes
1989. If the S&P 500 Index approaches 2000 from current levels, it will
really have the same "nominal value", even though it is a fresh record high.
Figure 6
The short-term Elliott Wave count of the US Dollar Index is shown below, with
wave [c].C either complete or nearing completion...the pattern is purely corrective,
so it could extend for another 2-3 weeks. A daily close below 79.4 would confirm
the illustrated pattern is complete. Until that point in time, we must assume
that wave [c] is still forming a terminal impulse (3-3-3-3-3). As it will be
more evident in Figure 8, I had to extend wave [E] because the amount of time
required for a break to the upside invalidated the earlier count. As such,
wave (C) is expected to take the US Dollar Index down to at least 73.0. The
pattern for wave (B).[E] really fits a diametric triangle for the current pattern.
I would expect a back test of the lower rising trend line after wave [b] before
breaking lower, so expect sideways to upward price action in the US Dollar
over the next 2-3 days.
Figure 7
The mid-term Elliott Wave count of the US Dollar Index is shown below, with
wave G.(B).[E] thought to still be forming. Each wave of the diametric triangle
for wave (B) is approximately equal to each other in time and complexity, but
vastly different in price. Wave (A).[E] took approximately 12 months, while
wave (B) took approximately 29 months. If a flat structure is forming for wave
[E], then wave (C) should consume at least 17 months (29 - 12 months) in order
to have a balance of time between this structure. This would put a bottom in
the US Dollar Index sometime in mid to late September 2015. I do want to stress
that anyone who is not familiar with the Contracting Fibonacci Spiral (CFS)
or Chirality and Chiral Inversion in the Stock Market, Google either title
alongside my name to find a hyperlink to take you to a posting. As much to
everyone's chagrin, the pattern appears to be playing out and is set to have
a strong run up in commodity prices. There are numerous Fibonacci retracement
levels presented in the chart below, which have some areas of cluster that
represent either strong support or resistance. As mentioned earlier, there
are two potential head and shoulders patterns, one denoted in red and the other
in blue. The first H&S pattern was negated by a sharp move, but set up
another H&S pattern. These sorts of patterns add collective downside potential,
which makes things really break down fast when it happens. If wave (C).[E]
were to start within 5-10 trading days, it would take until mid to late September
2015 to bottom, based upon the presented Elliott Wave count. I do want to stress
that a move above 81.5 would negate this analysis and likely send the US Dollar
Index much higher. Collective analysis of all the data presented in this article
however suggests otherwise.
Figure 8
Based upon this, continue to hold or add to further precious metal positions.
Regarding energy, a close above $101/barrel as mentioned last week remains
the trigger to send energy prices and their related stocks much higher.
I will continue to be developing the forecast for post September 2015, which
should see the broad stock market indices enter a 4 year decline, with three
absolutely powerful reversal trends at the bottoms (2018, 2019 and 2020). The
chiral inversion noted last summer appears to be holding and now a weakening
US Dollar Index has finally provided the final information to confirm the trend.
Back tomorrow AM. Have a great day.
