The USD Index is one of the key markets and it looks like a major shift just happened in it.
Namely, it moved decisively higher recently – it broke above the third resistance line, which was likely to be the “real breakout”, and based on the size of this week’s rally – it is.
That’s USDX’s biggest weekly gain since March, and the week is not even over yet.
Quoting my previous comments on the USD Index chart:
The USD Index is moving back-and-forth, below and back above the previous lows. It breaks below them and then quickly invalidates the breakdown. The bulls are simply too powerful here to allow for a breakdown.
And you know what? It seems that this is about to end, and a rally is likely to follow.
One of the reasons is USD Index’s tendency to reverse its course close to the turn of the month (or right at it). I marked those turnarounds with vertical, dashed lines. And, well, the turn of the month is upon us.
There’s no doubt that the most recent move in the USD Index was to the downside, so the above tendency is likely to have bullish implications.
Another thing is that a move higher from here would likely lead to a breakout above the USD’s declining resistance line. This is particularly important because of the “three line break” technique.
The latter means that it is the third breakout – above the third resistance line that really matters. As you can see on the above chart – THIS is the third line. So, yes, the implications are likely to be profound.
At the moment of writing these words, the USD Index moved slightly above the third resistance line – perhaps we are witnessing the breakout right now.
Since the precious metals market tends to move in the opposite direction to the direction in which the USD Index is moving, the above is likely to add fuel to the bearish fire in gold, silver, and – perhaps most importantly – mining stocks.
Gold is not reacting to USD’s rally just yet, but it’s quite common for gold’s reaction to be delayed. Especially now, given the hot geopolitical situation in the Middle East.
Gold is back below the rising support / resistance line, and the USD Index’s rally is likely to trigger further declines in the near future. Nothing really changed since yesterday, so my previous points remain up-to-date.
In particular, the one about gold most likely having reached its final top based on the Fibonacci extension level.
Meanwhile, the GDXJ moved lower yesterday. Insignificantly so, but still, it was a daily decline.
This means that the analogy to the 2022 top remains fully intact.
The decline back in 2022 resumed with full force shortly after the daily correction, but let’s keep in mind that the history rhymes – it doesn’t repeat itself to the letter.
All in all, with little changes on the markets (except for USDX’s strength), there’s also little that I can comment on today. One thing that I’d like to add is that the HSI Index just moved lower for the first time in many days – right after I wrote that it was likely topping (which I did in yesterday’s analysis).
Quoting:
Today, I’d like to show you a different stock market that also flashed a major sell signal.
The Hang Seng Index measures the performance of stocks listed on the Hong Kong Stock Exchange, and it just did something that previously marked major tops.
Namely, it soared on huge volume. I marked similar cases and they all (at least in the previous 12 years) marked key tops in the market. To clarify, there were more cases when the index moved on huge volume, but only ones where the volume accompanied big rallies are analogous to the current situation.
Also, this index moved to its previous medium-term top, most likely meaning that the rally is over.
Remember that the worst performing markets and sectors are faking strength in the final parts of a rally? The HIS has been very weak since 2021 and it moved sharply higher just recently – along with copper – which is another weak market. All those markets’ indications confirm each other.
And that’s what happened shortly thereafter.
We just saw the “hanging man” reversal candlestick, and a first visible daily decline in over two weeks.
This – along with the situation in the Japanese stocks and with the likely bottom in the USD Index – suggests that major changes await multiple markets, including gold, copper, silver, and – most importantly – junior mining stocks.
If you’ve been waiting on the sidelines for more confirmations OR you previously closed your position and are wondering what kind of position to open – THIS IS IT – this is the confirmation that the big moves have likely just started. Of course, that’s just my general opinion, not investment advice aimed at anyone in particular.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief