The Dow closed lower last week but there is a curious divergence between the all-conquering FAANGS and the Nasdaq (home to them all).  The Nasdaq is pushing up towards a new ATH while the FAANGS remain near last week’s low.  There is evidently a great rotation out of the leaders (the big name tech) and into the laggards.  My reading is that the recovery in the Dow (a Fib 62% of last week’s decline) is too much and too fast for it to be just a correction to a downtrend. And with the Nasdaq pushing new ATHs, the momentum is back with a stock index rally.

And I have a super set-up for the start of a major rally phase in the Japan 225.

My wedge covers the last eight months of trading and has a corrective appearance.  And on Friday it met the confluence of the lower wedge support line with the major lower tramline (from Nov 2019).  That is doubly strong support. Given the major mom div and the highly accurate hit on the two support lines, odds are high a strong rally phase has just got started.  If so, I cannot see the US indexes bucking that trend – at least for long.

 

But today I want to focus on the dollar.  I have been bullish but now I am starting to have major doubts.  Here is the monthly euro

The rally off the 2000 low is a clear five – an impulse.  From the wave 5 high in 2008, the market is trading along my accurate tramlines with highly overlapping waves – and that has a corrective look.  The wave pattern is very complex but I can make out a basic three to the ‘c’ wave low in 2017 on a strong mom div. The rally to the January and May highs took it to the upper tramline and is currently under that line.  If my wave labels are correct, we should see another attempt at breaking above it. To confirm, I need to see a small scale five up.

But the upper tramline represents very strong resistance (with five very accurate touch points), so I am on alert for another possible failure.  Let’s see.

VIP Traders Club members have been long USD/JPY with the yen in decline

Again, we are close to a major tramline as in the euro.  I have a possible three up as it has been testing the line. I have no firm view here and that is why I am still holding longs.  But a failure here would send it lower as the large mom div comes into play.

And if my current forecast on Silver comes to pass, a bullish euro would help reinforce

For almost a year the market has traded in the 22 – 30 range and seems to be tracing out a five-wave continuation pattern (see my text pp 38 – 39, 144 – 145).  My next target is the upper tramline around 30.  Gold’s wave pattern is different but has a similar upside potential.

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And over in Pro Shares, we are trading Rolls Royce.  The venerable jet engine manufacturer has taken a huge knock from the disruption to aviation during the pandemic.  But it has more irons in the fire – namely, its small scale nuclear reactors that are waiting in the wings when the craze for wind and solar hits a brick wall.

It appears poised for a monster advance and with the limited downside potential, I can advise tucking these shares away.  My first major target is the 250 area with higher potential.  The bullish wedge appears to be another example of a five-wave continuation pattern.

 

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