There is a preliminary head and shoulder pattern on the PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP). This is the Dollar tracking ETF and I use it because most average investors can view this chart easily. A head and shoulder pattern is a bearish pattern that triggers when the neck-line is broken to the downside. Because the Dollar and markets are inverse, this may suggest, should it trigger, the markets have another leg higher. Please note, it has not triggered. In addition, one of the intriguing catches to head and shoulder patterns is that they can fail very easily, when they are at the lows of the chart. This head and shoulder pattern is at a low. Should a head and shoulder pattern fail, look for a strong reversal in the Dollar.
The markets and the Dollar trade inverse to each other. The Dollar leads the markets. Therefore, this pattern is extremely important to watch as it controls the future of the markets.
As a Chief Market Strategist, I pride myself on being able to nail every major and minor market move. As I study the charts I find myself not trusting this bearish Dollar pattern for multiple reasons. Even if the head and shoulder pattern triggers to the downside (which implies huge upside in the market) I would wager it will fail. Often times the most obvious patterns fail because the average investor is alerted to them. As we have learned time and time again, the average investor is screwed by the institutions.
I will continue to watch the pattern closely to see if it triggers. Even if it triggers it must be watched extremely carefully to see if it fails. Failure means a big multi week/month pop in the Dollar and downside in the markets. Please note that failure would occur if the neck-line is closed back above on the daily chart after it triggers with a close below.
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Related: CurrencyShares Euro Trust (NYSEARCA:FXE), CurrencyShares Japanese Yen Trust (NYSEARCA:FXY).
Chief Market Strategist