The Fiat-Cliff

By: Joseph Russo | Fri, Mar 22, 2013
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I would like to start this piece by recommending a rather thorough and viable chart study of the US dollar by an analyst writing under the pseudonym Rambus, titled Dollar Bears Prepare to Hibernate. Rambus has produced some excellent charts in this piece along with sound analysis, and in my view, provided readers with valuable information and insights.

It is my hope that Rambus and the readership at large will not mind if I attempt to add another layer to his cogent work.

Albeit spawning from a relatively recent and still fragile signal, at present, my work also reveals a long-term bullish bias for the dollar and a contrasting bearish bias for gold. I will endeavor to add value to the good work of Rambus using a monthly bar chart going back to 1971.

monthly bar chart going back to 1971

The first thing I would add relative to the big-picture monthly chart from 1981 presented by Rambus, rests specifically with regard to the H&S top mentioned. That peak occurred in 2001, and more importantly, the bearish neckline associated with it, which rests near the 80.39 level was absent from the observations he shared.

This is a critical FIAT-CLIFF bearish (neck) line in the sand, which the dollar has been struggling seriously with since July of 2007. The Dollar has traded above and below the FIAT-CLIFF for nearly six years. A wide coiling pattern akin to a rather sizable flag pattern has formed, which in this case, would imply the presence of a continuation pattern with better than fair odds for an eventual bearish resolution.

I have replicated Rambus's 4-point fractal sequence and boxed point 4 on the left, and point 1 on the right to illustrate the genesis of this major neckline. This is a line very much worth keeping a sharp eye on.

As noted in the lower right, the neckline drawn from these two points governs the active defense or suspension status of a downside price target in the low forties, which if achieved, would result in a 50% haircut from current levels.


Risk of Ruin

The final layer I wish to share surrounds what I refer to as a "risk of ruin" trajectory. When breached, risk-of-ruin-trajectories calibrate downside price targets, which for all intent and purpose virtually destroy 100% of all existing value.

Spawning from the pivot low in the late 70's and the first point labeled 1 in the late 80's, the thin rising trendline moving upward and to the right, ending just above the prayerful Ben, identifies a clear risk of ruin trajectory.

So long as the dollar maintains trade and closes beneath this rising trajectory, complete obliteration of the fiat currency to the tune of 90% from current levels, is a defended and working target. The FIAT-CLIFF line simply adds a level of immediate drama associated with the first 40% of a cataclysmic 90% wipeout.

Note how the risk of ruin trajectory twice rejected the dollars attempt to break above it upon twice approaching the rising resistance rail associated with right shoulder of the FIAT-CLIFF head and shoulder pattern.

Having said all that, until the shorter-term price action dictates otherwise, we remain bullish the dollar right alongside Rambus.

In wrapping up this view from 50,000 feet, each of us should hope and pray along with Ben for a sustainable rally to the 105 target, which would place the dollar-trade above the implied risk of ruin trajectory.

If such a bullish feat occurs, to remove the risk of ruin entirely, the dollar must never register a monthly close beneath that rising trajectory for if it does, the risk of ruin is back in play.


The Elliott Wave Take

Below is a long-term chart similar to the one Rambus used from 1981. I have held to this wave count (as has the dollar) for nearly a decade. This does not imply that I will be right in the end, it simply proves that I have been right thus far.

Dow Chart June 19 - 2009.png

To fully appreciate our unconventional application of the theory, specifically as it relates to the above chart, please refer to "US Dollar: Wave Counts, Flight-to-Safety" penned in June of last year.

The following is brief excerpt from the above link:

As graphically inferred by the articles introductory image, there is no doubt whatsoever that since its general inception, the US dollar remains by politically exploitive design, enmeshed in a long-term secular decline toward oblivion.

The end game will play out like those of all other fiat currency throughout humankind's history, which shall of course lead to an outright failure and the existential necessity for the country (or world) inevitably to manufacture and adopt a suitable replacement.

Until next time, Trade Better/Invest Smarter

 


 

Joseph Russo

Author: Joseph Russo

Joseph Russo
Chief Editor and Technical Analyst
Elliott Wave Technology

Joseph Russo

Since the dot.com bubble, 911, and the 2002 market crash, Elliott Wave Technology's mission remains the delivery of valuable solutions-based services that empower clients to execute successful trading and investment decisions in all market environments.

Joe Russo is an entrepreneurial publisher and market analyst providing digital online media solutions designed to assist traders and investors in prudently and profitably navigating their exposure to the financial markets.

Since the official launch of his Elliott Wave Technology website in 2005, he has established an outstanding record of accomplishment, including but not limited to, ...

  • In 2005, he elicited a major long-term wealth producing nugget of guidance in suggesting strongly that members give serious consideration to apportioning 10%-20% of their net worth toward the physical acquisition of Gold (@ $400.) and Silver (@ $6.00).

  • In 2006, the (MTA) Market Technicians Association featured his article "Scaling Perceptions amid the Global Equity Boom" in their industry newsletter, "Technically Speaking."

  • On May 6 of 2007, five months prior to the market top in 2007, though still bullish at that time, he publicly warned long-term investors not to be fooled again, in "Bullish Like There's No Tomorrow."

  • On March 10 of 2008, with another 48% of downside remaining to the bottom of the great bear market of 2008-2009, in "V-for Vendetta," using the Wilshire 5000 as proxy, he publicly laid out the case for the depth and amplitude of the unfolding bear market, which marked terminal to a rather nice long-run in equity values.

  • Working extensively with EasyLanguage® programmer George Pruitt in 2010 and 2011, the author of "Building Winning Trading Systems with TradeStation," he assisted in the development of several proprietary trading systems.

  • On February 11, 2011, he publicly made available his call for a key bottom in the long bond at 117 '3/32. Within a year and half from his call, the long bond rallied in excess of 30% to new all time highs in July of 2012.

  • For the benefit of members and his general readership, he responded to widespread levels of economic and financial uncertainty in the development of Prudent Measures in 2012.

  • He publicly warned of a major top in Apple on October 26, 2012 in the very early stages of a 40% decline from its all time high.

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TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/