The US dollar index chart below clearly shows a three year topping pattern with multiple price levels which when broken will trigger farther selling. These red horizontal lines on the chart show these price levels.
Critical support is around the 79.50 area which if breached should start a major wave of selling in the next few months. The initial wave of selling should take price all the way down to the 78.00 level before taking its first breather/pause.
Most technical analysis books and traders think that the more times a support trend line has been touched the strong it becomes. That actually could not be any further from the truth.
Let me tell you how to trade trendlines.
1. You must have at least two pivot points (highs or lows) to be able to draw a trendline.
2. The 3rd and 4th touch of this line can be traded for a bounce.
3. Any touch of the trendline after the 4th is actually doing damage as it eats up the support volume.
4. A rising trendline like the one below clearly shows multiple pivot lows that when breached will trigger stops and flood the market with supply/sellers. It’s the perfect storm for a downward move.
Gold ForecastMy gold forecast has not changed in nearly a year as we wait for the gold market to bottom, then prove it’s self by breaking out of its basing pattern.
The bullish gold forecast is of the bigger picture. Most gold market traders and investors are caught up with the day to day price action and are growing tired of the range bound trading which gold has been doing for some time now.
In 2011 I pointed out the possible major topping pattern in gold, and that if price broke to new lows, then it would be lights out for at least a year if not two before the chart would build a new bullish base. And that leads us to my current gold forecast.
Gold Forecast & Gold Market Traders Conclusion:In short, my gold forecast should be looked at from the big picture perspective. Getting involved in any gold stock, commodity or investment that is stuck in a range does carry more risk. It is easy to get shaken out of these positions a few times before the new bull market emerges.
The lowest risk position is to wait for the breakout of the basing pattern (yellow rectangle), only then can gold market traders get heavily involved to the long side.
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