USD Shocker Plus Gold’s Mutiny Equals Epic Opportunity

In yesterday’s alert, we wrote that the situation could change quickly and that in such a case, we would send another alert. Six minutes after yesterday’s opening bell, we already posted the second alert. And for a very good reason. The USD Index took a deep dive and metals were not even close to reacting in a normal way. They were actually a bit lower. We know an extremely bearish signal when we see one and that was definitely the most bearish development for the PMs that we’ve seen this year.

Let’s take a look at what happened. This time we’ll start with the short-term USD Index chart (charts courtesy of http://stockcharts.com) as we want to show you the action of yesterday’s session.

We previously wrote about 3 very strong support levels based on the previous highs (2009 and 2010) and the 50% Fibonacci retracement level based on the 2011 – 2017 rally. These levels are: 89.11, 88.71 and 88.26.

The USD Index opened yesterday’s session at 89.10, moved almost a full index point lower (Stockcharts shows 88.25 as the intraday low, while Bloomberg points to 88.438 as the low) and then rallied back up, closing the session at 89.23 (Stockcharts) / 89.391 (Bloomberg).

Please recall what we wrote about breakdowns/breakouts and their invalidations. While the former need to be confirmed / verified to be important, an invalidation is an immediate and strong signal. Now, please go through the previous paragraph again. That’s right – the USD Index broke below the key support levels on an intraday basis and immediately invalidated the breakdown, closing the session higher and above all of them. That’s a perfectly bullish combination.

The only thing that could make it more bullish is if the USD reversed under oversold conditions and close to the cyclical turning point.

Oh wait. It did.

Based on the daily RSI indicator, the USD Index was most oversold in more than a year and it reversed exactly at the turning point.

The strength of the bullish factors and the amount of them is almost breathtaking.

And there’s also one more. The 50% Fibonacci retracement level based on the 2011 – 2017 rally was not the only one that was reached. There is also another useful way to create the retracement and that is by basing it on the 2014 bottom. It’s definitely important as that’s when the biggest rally of the past two decades started. Consequently, retracements based on it are important as well. The 61.8% Fibonacci retracement level is at about 88.40.