Gold & USD: Continuation Patterns
- The US dollar. Some amateur chartists see a bull continuation h&s (head and shoulders) pattern on the weekly chart of the US dollar. I suspect this analysis comes from the non-stop pounding I gave the gold community on the existence of a bull continuation h&s in Gold, between 680-1033. That pattern activated, and has been the main driver of the move in gold from 970 to current levels.
- Unfortunately, you need to actually read Edwards & Magee, many times, before announcing to the universe you are now a technical analysis master. Jim Sinclair calls the US dollar chart, “worse than Enron”. Amateur land calls it a “bull continuation pattern.” My view: amateur land is going to get a very interesting lesson in technical analysis, and account drawdowns, very very soon.
- There are many many parameters that need to be considered before drawing a chart, before announcing you have a major market “all figured out”. To give power to a bull continuation head and shoulders, rule number one is that it must be continuing a major trend. In the case of the US dollar, the bull continuation h&s pattern comes after a micro blip upwards. The bottom line:
- There is no bull h&s continuation pattern on the USD. All there is on the chart is an uptrend blip, coupled with an h&s shape, not an h&s chart pattern. Please throw your USD bull market fantasies into the waste basket. Thank-you. A continuation pattern, by definition, continues a trend. It does not continue a blip.
- The pattern that does exist on the US dollar is a symmetrical triangle pattern, with a 66% chance of breaking down side, per Edwards & Magee, not per the fantasy of a boatload of failed amateur investors, sitting side by side, by the millions, in the paper money blast furnace, reading USD cue cards handed to them by the banksters. The continuation pattern in play is: a downside symmetrical triangle, with a 66% chance of taking the US dollar down in a move of intermediate trend size.
- What does that mean for gold? It means that you get richer, that’s what it means.
- Traders should understand that within the major bear market, the USD will have many blips up. Unless you are a professional, don’t waste your time trading your gold for US paper, to get in on these micro up blip plays. Use any temporary US dollar strength to buy more gold.
- Here’s the US dollar monthly chart, highlighting the USD symmetrical triangle: US Dollar BEAR Continuation Pattern.
- The USD weekly chart gives a closer look and you can see that price could easily move up to the 88 area while still remaining within the confines of the symmetrical triangle, the bear continuation pattern. Most investors in the gold community trade far too big, and thus have a tendency to get carried away by what are really micro moves. Who cares if the USD goes to 88? I don’t.
- Who, really, is capable of predicting all the small bull moves in the USD in a way that you consistently profit from them over the life of the bear? Likely answer: Nobody. So, if you try to invest based on the next possible micro move, repeatedly, guess what happens to you in the market?
- Answer: Paper Money Bloodbath.
- Here’s a look at the US Dollar Daily Chart. I’m the first to admit the oscillators are oversold and turning up, but notice the red circle on the chart. That’s a small h&s top, and the big picture technically for the USD is very, very, very negative. I cannot overemphasize that for most of you, any strength in the US dollar should be used to buy more gold, not to freak yourself out, dump your gold and go long the dollar. Don’t guess about coming dollar strength. IF it happens, buy gold. End of story.
- The big fundamental picture for the USD is “only” about 10,000 times more negative than the already-horrific technical picture. Mark to model accounting prevents hundreds of trillions of dollars in OTC derivatives being valued at a price even remotely close to what any legitimate buyer would pay. Ben Bernanke is on record as stating categorically that the release of the bailout recipients could cause a cataclysmic run on the banks. How is that that US dollar bullish? It isn’t. It’s wildly bearish.
- That takes care of the big picture. What about the now?
- That’s also a concern, and a growing one. As gold tanked into 1200 from 1266, huge capitulation took place across the gold community and the fund community. By 1156, the situation had worsened.
- Sadly, my partner “gold artist” believes we may have seen 50% of the gold community on the gold buy since we’ve risen over 1240, on this aprox $130 power up swing from 1256 to 1285.
- If you bought nothing into 1156, my question to you is, “what in the world are you doing chasing price on the buy at 1285?!” If you are buying now, after selling then, you are essentially begging the banks to take you to the woodshed for another beat-down. Nobody needs to chase price to buy gold. Gold is timeless, gold is forever. “Elmer Fudd” Public investor will be dead and gone long before gold becomes a “barbaric relic”. In the cartoon, Elmer Fudd was a very wealthly man who became obsessed with chasing “wabbits”. I’ve used the analogy to show you how extremely successful business owners can be destroyed in the market, by chasing the “rabbit” that is….price.
- Don’t be like Mr. Elmer Fudd Price Chaser. As I mentioned yesterday, some members of the public are starting to follow gold’s price higher. Why do you need to chase price? Answer: Because it’s an emotional urge that is part of human nature. When you were a child, your parents or guardians would smack you if you did something stupid in the house. Unless you are born into the bankster families, where the kids are trained (ordered) not to chase price, you have no “guardian” to keep you in line. The bankers grew up mean, but professional in the their market actions, because of that discipline.
- The markets are similar to business, but not the same. If gold moves $50 higher and you have to watch it rise, that’s what’s called professionalism. Use the pain of being out, to learn from failing to buy anything into 1156. No pain, no gain. Use that “longing to be in” to take charge on the next bout of price weakness. To take charge on the buy.
- I don’t care if gold’s price rises $500 higher from here without one single down day; I do not chase price. I don’t chase it $1 higher, $100 higher, nor $1000 higher. Enjoy the ride with your core positions, to wherever this intermediate move ends, but do not chase price!
- If you find yourself breaking down mentally, overwhelmed by the price-chasing urge, (and we all have a breaking point), then commit only the amount of “market sin” required to kill that urge. You will be very surprised how little gold you need to buy to kill that price-chasing urge.
- Fund Manager “Mr. Macro”, who advised shorting the Dow in the spring of 2007, then bought the Dow in March of 2008 in size, sent me an email last night that he’s blowing out a lot of those longs this morning and adding shorts. It’s been a sweet ride for those of us who went long the stk mkt into the lows at 6500, as I did. It wasn’t sweet on the entry, and it never is. Gold could be affected negatively if we start to see some weakness in the general equity markets, and I’ll remind you all that we are not out of the sep-oct “stock market crash season” by any means yet. Mr. Macro expects the Dow to make a new high by year-end, so this is a tactical play. Not a “dow to zero, we got it this time” pipedream. Here’s the Dow Chart. Note the HSR line (horizontal support and resistance) has been penetrated to the upside. A classic buy signal in technical analysis. I don’t buy breakouts. I sell them. I booked profit on all my trading positions in the Chinese stk mkt this morning, and now hold only core positions. Sell breakouts, sell strength. Weakness will return, whether now, or from higher levels.
- Here’s the GDX. GDX Chart. The gold stocks oscillators are starting to roll over, and last night I highlighted a number of junior situations where the 40%-100% moves upside in 4-8 weeks appears to be slowing, in terms of profit velocity. Those who chased price and bought over the past 2 weeks, are probably getting nervous. You should be. Nothing changes in markets when you chase price. Except the size of the losses that follow such madness. Let’s do it right. Competition with the banksters is the only way to supplant them, and it all starts with professionalism in the gold market, the ruler of all markets
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.
Risks, Disclaimers, Legal: Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line: Are You Prepared?