It is rare in the business of Technical Analysis to uncover a price chart that offers an almost flawless indication of price direction. However, as I write this missive today I find myself staring in virtual disbelief at the daily price chart of UUP (The U.S.$ ETF) and believe I have uncovered one such gem.
Technical analysis is often maligned as more of an art form than a strict replicable discipline, but of course there in lies the beauty. If you happen to be a bit of an artist and dedicate yourself to the pursuit, as I have for over 25 years, then perhaps you can get an edge. Of course, this type of analysis (identifying price chart patterns) does not guarantee precise movement but instead increases the odds of success for a particular outcome.
Please review the chart below of UUP and meet me on the other side for an explanation…
As your docent, if you will, I would begin by drawing your attention to the grey rectangles that appear on the UUP chart at the beginning of June. At the top of the graph you will see the initial top in price reached on May 31st/June 1st. Then if you glance below the Price graph to the three Momentum graphs (DMI, MACD, Stochastics) you will witness classic momentum sell signals across the board highlighted for your convenience in corresponding grey rectangles.
Now, please allow your eye to wander further to the right of this masterpiece and pick up the yellow rectangles. The rectangles at the top show consecutive new highs in price of UUP while the rectangles below illustrate clear non-confirmation of the price highs. The yellow momentum rectangles at the bottom right show disturbing lower highs suggesting that while the price of UUP wandered into new high ground a major lack of conviction was building. This weakness resulted in the subsequent gap down of July 26th to the red uptrend line. Finally, one can see that as the price ran up to "close" the gap (Red circle) the momentum was dismal (Red circle on Stocastics) leading again to today's vivid breakdown below the red uptrend line. The top is now complete and a new trend, likely down, is in place.
Precious Metals Outlook:
Should this U.S.$ breakdown continue to unfold, as the analysis suggests, then there will be no greater beneficiary than the commodity markets and more precisely Gold and Silver prices. In fact, analysis of the price and momentum action of the Gold market reveals an almost mirror image of the U.S.$ chart above. Higher lows have been in place for the Gold market since the June 1st top in the U.S.$ creating a clear uptrend and a tidal wave of positive momentum has been building . I will reveal a thorough analysis of the Gold market in a future post, but for now begin to wrap your head around the likelihood of a major directional shift in Gold prices after a 12 month price consolidation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.