Wednesday, December 9, 2009

The "Death of the Dollar?" - Japanese Candlesticks Say "Not Yet"

It is the very height of fashion now to decry the continued loss of value of the dollar when compared with most other currencies, especially the euro. Very big names have joined the bandwagon in predicting that the dollar has no future. The mass of popular opinion seems to have fallen in line behind prominent folk in the propagation of the thesis. Some of the leaders of the pack are prominent because they have succeeded in business; some because they are in positions of influence in government, and still others are movie stars who, no doubt, have been deeply schooled in economics in earlier lives and are therefore qualified as experts on the subject. The herd follows right along, because people who are expected to know the answers (some of them, at least) are doing the talking.

And yet, it bears recalling that when the majority becomes such an overwhelming majority that it approaches the status of a monopoly, chattering among themselves and reinforcing each other in circular fashion, the overwhelming majority is often wrong.

Let us assume that the euro is roughly the counterpart of the dollar. With that in mind, let's examine recent "monthly" and "weekly" price charts of the euro and see what we find.

On the "monthly," we see a persistent and nearly continuous rise in the value of the euro (as against the dollar) all during 2006 and 2007, continuing in January, February, and March of 2008. The rise abruptly stopped short in April, when a modified "Shooting Star" Japanese Candlestick pattern emerged. This pattern is bearish, and warns of a possible change in trend, to the downside. The price bar for May has no particular meaning, since the month is only five days old as this is being written..

On the "weekly," we see something akin to a "rounded top" in prices in late March and in April, with progressively taller upper Candlestick "shadows" toward the end, then a bearish weekly bar which engulfed the "real bodies" of the preceding three weeks, followed by another weekly black bar and lower prices at the end of April. The "rounded top" signifies a gradual exhaustion of the fuel which drove the rise. The tall "shadows" indicate increasing resistance to attempts to drive prices higher. The bulls were losing strength. And then, late in April, the dam seems to have broken - or at least "the fever broke" - and prices turned down.

It is impossible to know whether the decline will continue. However, it is important to note that the free-and-easy, almost effortless and irresistible rise of the euro over a course of more than two years hit a ceiling in late April. The game is no longer the same as it was.

At the very least, we now know that there is strong resistance to a rise in the euro above the $1.58 level. Further, the recent signals are bearish, and impute the real possibility of a decline in the euro (and a corresponding advance in the dollar) over the next weeks. The dollar isn't dead yet.

The author is an experienced investor; a retired attorney and corporate CEO; the creator of the "Candelaabra" technical analysis system for use in the financial markets; and has passed the NASD Series 65 Investment Advisor exam. He publishes his investment advisory newsletter to help you keep your money safe and to guide you to profit in the financial markets regardless of the direction of price trend. Find out more about making money in any economic climate. Free information and sample investment newsletter are ready and waiting for you, without any cost or obligation, right here at ====> Go ahead! Click on me!

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