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April 20, 2010

The Pattern

I think I'm going to change the name of this blog to itdependsonthedollar.com because... at the risk of sounding utterly redundant... we still await some discernable direction from the dollar index to determine the intermediate-term direction of gold. At least we can now draw some high-probability lines in the sand based on an apparent consolidation pattern playing on on the dollar's daily chart:

us dollar chart

For those of you who have never heard of a double-loop consolidation (or ending pattern), welcome to The DOCument. This pattern is one from my personal repertoire, and consists of two loops beneath a sloping resistance line. To cut to the chase, if this is a valid pattern, it projects the DX to 85. However, as with most technical analysis patterns, one must wait for resolution. Jumping the gun can be deadly with this one, because when the pattern fails, it usually does so dramatically.

So, if the DX convincingly breaks the resistance line, we're probably looking at DX 85 in the near future and an end to all our other rallies. On the other hand, if the pattern fails an the DX drops below 80, gold and stocks will be off to the races.

 

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