XJO (ASX) Indices 10/10

Originally posted by Launched: ↑

Let me clarify what I said about he DXY earlier as my intent was merely to show the strength of the trend, which is undeniable.

I also said that contrarians may see this current set up as an opportunity but I was in a cafe whilst my son does his martial arts so my time was quite limited.

Have just been to lunch and had a few beers but I'll go little more in depth now as I do have an opinion on DXY as I do watch that market a lot, however I prefer to trade gold as a proxy and I'll explain why a little later.

Firstly let's look at the daily.

Sure the DXY has been red hot recently but as far as 'overbought' goes it's had numerous times in the last couple of years its been overbought on the daily timeframe yet all it needed was a quick breather and away she went again.

It's not overbought at all on the daily and Fridays bounce was off a very key level.

The last 4 weeks have been heaviest volume of the year and it's no surprise that the POC (most traded price) in this period is bang on the bounce level from Friday - 111.90

This level is the one to watch atm as a break will certainly put that next level down in play - theres the 108ish level you're looking for @Fadz
*108.60 (as marked) is a little more like it

That 108-109 level also happens to be LT support, so very good chance we see a bounce if it does pull back.

Next level below is another big one around 106 but DXY bears may want to take a look at the weekly timeframe for the real 'mean reversion' level (if we see the 'big sell')...

DXY daily

Flipping over to the weekly and the levels probably can be seen a little clearer.
It's certainly clear that the last months volume is the heaviest if you look at the weekly volume bars at the base of the chart.

Speaking of volume, it's also clear where all the money went through the exchanges and that level is much, much lower than current price.

The POC since 2021 is around 96.
This level also happens to be where the weekly 100MA and 200MA sit - what do they say about mean reversion and long duration MA's?

Before any DXY bears get excited at all I'd want to see some of those key levels below current price to be taken out - starting with 111.90

DXY weekly
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Ok, we've seen daily and weekly charts so lets look at the monthly but instead of looking at price lets look at the RSI so we can compare eras of overbought to see where we currently sit.

You can see on the monthly RSI below we are currently at the 5th highest reading since my chart records go back to (1968).

1968 and 1969 were major years with RSI rocketing as much as 90 on the monthly.

1985 and 2015 were the other two periods in heavy oversold territory.
In fact the first half of the 80's the RSI was red hot.

DXY monthly RSI

So yes, we are at historically high levels but the risk is there is A LOT of room for more upward pressure.

And seeing as many are comparing todays inflationary times to the 70's and 80's it should be noted that the DXY hit ATH at the time the RSI was ripping higher in '85 - with an ATH of 164.72

If you look closely you can see the peaks I've circled on the RSI on monthly chart below

DXY monthly

So what does this all mean?

DXY has had arguably the strongest trend in markets this year so I'm not one to stand in front of freight trains or willing to gamble (big amounts) on picking the 'top'.

History says there is every chance we see higher and also says the trend is your friend.

Personally I'm not one to fight history or try for the hero trade and pick the 'top' but I'm certainly on red alert for this time to come as it is potentially very near.

My first level is that 111.90 mentioned earlier and we'll look to test the trend - due to the trend I'll expect a bounce from the 108/109 level but also be on red alert here for any lower breaks here...

Earlier I mentioned I watch DXY a lot but prefer to trade gold as a proxy - the reason for this as DXY has been making new high upon high so most volume data is too far gone.

Gold has had an inverse relationship with DXY recently but has not dropped lower at the same speed so volume data has been very helpful to find lower and upper targets.

However gold is now testing lower prices so may fall out of this balance so I'll decide which market has more relevant data if we see a break lower (levels mentioned in post earlier in the day).
*Could be time for a bigger play...

You can see in chart below the inverse relationship between gold and DXY and also see how gold has held more of a 'range'.
It's also clear from the line chart that gold has just retested that range and failed - not ideal for gold bulls...
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Quick summary
Hero's don't always come out on top, so don't go heavy at random guesses for tops or bottoms.

Wait and watch for key levels to break and then enter.
Or take smaller positions and have accumulation (and stop loss) targets set.

Seasonality says DXY may not see the top for another 4-6mths but then seasonality also says broader markets start their xmas rally from here so be careful out there, it's tricky for even the pro's.

Risk management is important but so is profit.
So don't get paralysis by analysis but don't go throwing the kitchen sink at one trade - there's always more and consistency pays more in the long run...

I'm not willing to guess what lies ahead for the immediate future as there are very conflicting signals in a number of markets, however the markets I discussed earlier today are certainly showing a very good chance of some sort of major catalyst in the next week or two...

Anyway, thats it for me.

Play safe and stay nimble!

**Apologies if you've read this post twice.
I did mention I'd had a few beers before writing so just cut and paste the last with late edits.
Will moderate earlier post now. Oops..

Expand

Anyone watching DXY will want to note that session closed below that all important 111.90 level.

Still within touching distance from the last 4wks POC so watch trading around here.

If support has just become resistance then markets could be about to get their pump on.

Good luck, play safe and stay nimble...

DXY daily

*phone chart as I'm on the move but refer to previous post for more detailed charts...
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