Upstart research firm Waverley Advisors continues to put out some very interesting research and analysis.
In a note today they apply Dow Theory to the surging dollar and conclude this move is real.
Meanwhile, let us take a look at another market for a good picture of a classic trend change. The US Dollar index has been in a long-term downtrend, broke a trendline late last year and made a higher high in the last few trading days of December. This year, it held a higher low and now is trading into new high territory.
Remember this sequence well because we will see it many times again: 1) Break of a trendline, 2)
higher high, 3) higher low and the trend change is confirmed when 4) the market takes out the
previous high. It is certainly possible to have this sequence and then to have the market turn back
down and make a new low. In this case, the trend change would have failed. Nothing is ever
certain—the best we can do is to point out the high probability play, put on the position, manage the
risk, and look for signs that we might be wrong. Regardless, this sequence gives us the best possible
chance of catching a change of trend in any market or any timeframe.
Photo: Waverley Advisors