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The following
article was presented to the benefit of subscribers on September 12th, 2012.
Rather than mimic a few previous articles I have penned, this one will focus
on technical analysis of one Index, with interspersed commentary fitting to
what is observed. The most interesting part I found from all of the analysis
is how well the Elliott Wave pattern of the US Dollar Index matched initial
expectations. At the end of the article, it is hoped that the reader has a
better understanding of how economic situations unfolding over the next 8-12
months are going to ultimately hinge on the path of the US Dollar.
Currencies
The daily chart of the Canadian Dollar
Index is shown below, with the move up yesterday having a price excursion
beyond the 21 and 34 MA Bollinger bands, suggestive that a short-term top was
put in place. Given the depth of the lower 55 MA Bollinger band, it will take
4-5 weeks of sideways to mildly downward price action before the Loonie heads higher. Full stochastics
1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1
and 3 and beneath the %D in 3. Even though the Loonie
registered an overbought reading with an excursion beyond Bollinger bands, it
appears further upward price action could persist for another 5-10 trading
days. The situation with the US Dollar Index declining so hard so fast
indicates that a potential rally is looming, which will be a temporary set back for commodity prices and the broad stock market
indices...this will be a pause as they put in new 542 week highs between
December 5th and March 6th 2013. Our target for the Loonie
sometime between April and August 2013 is $1.15-1.18. This is a double edged
sword for the US...it allows greater number of exports to be made, which
boosts jobs, yet incoming item such as energy, food and other goods etc. rise
by a certain cost. This is a silent tariff in many regards because blame can
be shifted to currency valuations for reasoning behind other countries having
a lag in their exports. As mentioned before, the broads top out first,
followed by commodity indices (HUI, XOI), commodities (gold, silver, oil) and
finally, the US Dollar Index bottoming sometime between June and late August
2013.
Figure 1
The daily chart of the Australian Dollar
Index is shown below, with upper 21 and 34 MA Bollinger bands in close proximity
to each other, with a noted gap off the lows from earlier this month. Full stochastics 1, 2 and 3 are shown below in order of
descent, with the %K beneath the %D in all three instances. The dollar from
down under is around 4-5 weeks ahead of the Loonie
with respect to bottoming....it is possible that the XAD corrects alongside
other currencies in 2-3 weeks time, but it will
simply be building a base for higher highs. Our target for next year with the
XAD is $1.18-1.21...this fits in line with this currency being generally
stronger than the Loonie.
Figure 2
The daily chart of the Euro Index is
shown below, with the recent price action having an excursion above all three
upper Bollinger bands, suggestive that a short-term top 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. Stochastics are near the upper portion of their range,
indicating that a correction is looming. All three currencies shown set for a correction strongly suggest a rally in the US Dollar
Index is looming. Since the extension of the Elliott Wave count did not
follow through and 81.0 was broken (mentioned as key support a few weeks
ago), the short-term mechanics of the market also changed. Expect weakness in
the broad stock market indices beyond September 20th, lasting nearly 2/3 of
October. This will set the stage for things to develop as expected. The wave
of inflation we are going to experience for the remainder of this year and
into mid 2013 could be stronger than any of us ever could anticipate. Key
measures for determining when a top is put in place will be looking for
expected pricing levels in gold ($2500-3074/ounce), oil ($160-180/barrel),
silver ($65-85/ounce) and a US Dollar low (71-73). When these levels begin to
be touched, it will be time to exit energy and precious metal stocks. Do not
forget that the broads are likely to top between December 5th 2012 and March
6th 2013...biotech stocks are poised for a breakout, which are likely to have
an upward trend running alongside precious metal stocks. As seen over the
past few weeks, a slight change in what happens with the US Dollar can have
immediate implications...this will be extremely important to follow as we
near our expected topping dates for exit from positions.
Figure 3
US Dollar
Index
The daily chart of the US Dollar Index
is shown below, with recent price action having an excursion beyond all three
lower Bollinger bands, suggestive that a bottom was put in place or is
looming. Full stochastics 1, 2 and 3 are shown
below in order of descent, with the %K beneath the %D in all three instances.
The US Dollar has been down hard for 6 weeks, which strongly suggests that a
bottom is looming, with an expected partial retracement somewhere
between 80.5-81.0. Nothing in the stock market is “As the Crow
Flies”, so expect a downward spiralling trail
with bends in the road...one of those upward bends is expected within the
next 5-10 trading days.
Figure 4
The weekly chart of the US Dollar Index
is shown below, with upper Bollinger bands above the current price,
suggestive that a top was put in place. Full stochastics
1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in
1 and 2 and above the %D in 3. Extrapolation of the %K in stochastics
2 and 3 suggest anywhere from at least 9-12 months of further sideways to
downward price action before a bottom is put in place. Initial support in the
US Dollar Index will be found between 72.5-73....chances are a pause for 2-3
months occurs in this area before breaking lower (likely remain above 70) for
this down leg expected to bottom sometime between June and late August 2013.
Figure 5
The monthly chart of the US Dollar Index
is shown below, with lower 21 and 34 MA Bollinger bands in close proximity to
each other beneath the index. As mentioned for the past 6 months, this Bollinger
band setup would either have an upward trend like 1996 or a downward trend
much like 2006. With the Elliott Wave count developing over the past 4 years,
it strongly suggests that a 2006 style of decline will be experienced (given
nearly 4 years of sideways price action that must be resolved to the upside
or downside. Full stochastics 1, 2 and 3 are shown
below in order of descent, with the %K above the %D in 1 and 2 and beneath
the %D in 3. Although stochastics are not revealing
at present, technical analysis on the daily, weekly and Elliott Wave counts
suggest a break to the downside...this has been confirmed with the strength
of the downward trend of the US Dollar the past 6 weeks.
Figure 6
The short-term Elliott Wave count of the
US Dollar Index is shown below, with wave [E] recently completing. Due to the
structure of the count, there was the possibility shown below,
or the preferred count at the time which had a wave C that was to have
started around mid-August. Since 81 .0 was taken out, the count shown below
accurately reflects what is going on. Surprisingly, the green pattern drawn
in place back in June turned out to be a rather accurate reflection of what
actually happened. Given the depth of the recent decline, look for a retest
of the 81.0 level to occur over the coming 3-5 weeks before any sort of
partial retracement top is put in place. If the US Dollar declines further
without participation of rising prices in gold and silver, a sharp correction
could be in store for early October before the broad stock market indices
rally to new highs later this year. The 4 year triangle pattern is now
complete, with the start of the new downward trending pattern expected to
last anywhere from 5-8 years...please note that if an expanding triangle
develops as expected, then volatility will be extreme and I mean EXTREME.
Figure 7
The mid-term Elliott Wave count of the
US Dollar Index is shown below, with the thought pattern forming denoted in
green. Wave [E].b of a triangle forming since 2008 is now though to be
complete, with wave [A] of an expanding triangle though to be forming for
wave c. With triangles, the downward break potentially could be as long as
wave [A] or up to 1.25x the length. This in theory could see the US Dollar
Index bottom around 66-68 before bottoming. I do not see the 70 level being
taken out during this leg down, but expect the unexpected. We could see
$2500/ounce gold with a US Dollar at 70.0, but a break to 66-68 would see
$3074/ounce. The prerequisites for pricing action in gold
has been laid, now we must wait and see what happens.
Figure 8
That is all for today...have a great day
and back tomorrow with an update of gold and related ratios...there are some
important observations in relation to gold expectations over the next 8-12
months, alongside further info regarding its lower order Contracting
Fibonacci Spiral (dates included).
David Petch
Treasure
Chests.com
Treasure Chests
is a market timing service specializing in value-based position trading in
the precious metals and equity markets with an orientation geared to
identifying intermediate-term swing trading opportunities. Specific
opportunities are identified utilizing a combination of fundamental,
technical, and inter-market analysis. This style of investing has proven very
successful for wealthy and sophisticated investors, as it reduces risk and
enhances returns when the methodology is applied effectively. Those
interested in discovering more about how the strategies described above can
enhance your wealth should visit our web site at Treasure Chests
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