This Technical Pattern Could Be Signaling Yet Another Top In The Dollar

The ultimate top is likely already in for the dollar. But it's "next top" may have just formed!

I've been watching the dollar very closely because it looks like the dollar's long-term uptrend was broken in early 2017 and IF that's the case, then what we're likely seeing right now is the dollar's first "bear market bounce" higher. And that latest run up is very likely running out of steam now. Let's take a look at the two charts below and I'll show you what I mean.

First off, you can see that the green, multi-year uptrend line has been broken and so far the dollar hasn't climbed above its top that formed as the dollar was going into 2017.

Secondly, we see that the RSI and MACD continue to lose momentum and slump lower. This is a sign that the dollar could be stalling out and may very well turn down soon.

We also see that the price has spent a good bit of time away from its blue, 50-week moving average which it's known to remain closer to over time. So I believe we'll see a return to that moving average, and then some (as you can see by the yellow arrow).

Keep in mind too, that there's already a "death cross" formation with the 50-week moving average crossing below the 200-week moving average and its held like that for almost a year now. So that's a very bearish sign for the dollar.

But let's zoom in on the daily, 1-year chart below and I'll show you the pattern that I'm highlighting today. It's called the "Island Reversal "pattern". It has two gaps: A bullish gap upward (emphasized by the green arrow) and a bearish gap downward (emphasized by the red arrow below). By the time the second gap happens, it leaves an "island" of candles on their own without any prices touching them.

The gap up acts like the "last hurrah" for the stock. It's the last/final surge higher that is sort of a blow-off top. Then the move quickly exhausts and traders and investors alike "run for the hills" all at once and that causes the gap down in prices.

So far, the gap down has held for two days now, with a declining RSI and declining MACD too, which are further bearish signs. Additionally, the price is still quite a ways away from its 200-day moving average and is likely to snap back to that region (and then some). And this "island reversal" is likely giving us an early "heads up" as to what is to come.

If the dollar does begin another surge downward, as I expect it will, then that will be great for our Logical Investor stocks.

The stock market correction that we've seen thus far is likely to cause foreigners to exit our market and as they sell their dollar-denominated stocks and convert their money back to their home currencies, that will continue an outflow of money of of the dollar as they repatriate their money back home.

God bless!

Comments (5)
No. 1-2

This education is phenomenal. Thank you!!

Joseph Goh
Joseph Goh

This pattern looks like a macro head and shoulders forming and the short term a micro head and shoulders about to form though.