by Tom Tragett
Posted 20th July 2016
Back in the third quarter of 2014 I was looking intensely at various charts of the pound versus the US dollar…
More specifically, I was looking at the relationship back to 2009 and using that data to work out some price projections.
Mainly I was using really long-term Fibonacci wave counts and retracement studies. If you’ve not come across those terms before, they’re basically different types of technical analysis. I won’t go into them too deeply here, but they need mentioning.
You see, I was getting a little frustrated with where exactly I should start my wave count from. Because if I took it from one particular point on the chart… the implications were frightening.
From my initial calculations, the pound could be in real trouble.
I figured I should look back further in time. I needed to check my working… check I wasn’t imagining something.
I mean, I was looking at an unprecedented fall in the pound here.
So, I looked back at the 20-, 30- and even 50-year charts.
I was shocked by what I saw.
It was perhaps the biggest long-term head and shoulder pattern I had ever seen.
More shocking was the fact that this particular technical pattern suggested that if the pound were to break what’s known as the ‘neckline’ it could fall to an all time low… lower than anyone would have imagined possible.
Searching for a catalyst
Having uncovered the pattern, I started to follow it more closely and looked at what might be the catalyst for the price to break the ‘neckline’.
You see, most of the time huge breaking moves like this need a catalyst of some sort to kick them off. When I first discovered the pattern, at the time it didn’t look like the Conservatives could win the upcoming election and I couldn’t see any clear catalyst.
Perhaps the move would never be realised?
Then the story evolved and it became clear that as a nation we were going to be given a chance for another vote on European membership…
This is when the penny dropped, so to speak…
A vote to leave the EU could be the catalyst.
So, I immediately began alerting my regular readers to my research and told them just how scary this one could be. I did this many times over several months during the course of 2015.
I also made it clear in seminars and public media appearances that this was one to watch and even just a week before the Brexit vote, I made it clear in a broadcast with my friend and colleague, Jim Rickards, just how this was going to play out.
The bookies were wrong
My view was that the bookies were wrong and had let the money flow distract them from the wider mood across the country, which was vastly different to that inside the M25.
I felt that we would vote to leave the EU and I also stated that this was the way in which I would vote, only for the purposes of our political self-determination, which I felt were being increasingly marginalised.
My personal view was that many people in this country felt similar to me and even those that had been given the opportunity in 1975 never did so with the intention of signing up to a ‘Federal Super State’.
I must say at this point that it saddens me deeply that so many people – on both sides of the debate – subsequent to its outcome, have now turned this into an argument about racism.
Anyway, leaving all that aside, my views a week before the vote were that it would be very close, but that we would vote to leave and that the pound would fall significantly on such an outcome.
I suggested a move of perhaps 2,000-3,000 points was possible on a Brexit vote.
So, the high seen on the night of the vote, at 1.5018, led to a subsequent sell-off low of 1.2798. That was 2,220 pips by my reckoning and pretty much exactly as I forecast.
I also said in a broadcast before the vote that I felt there was an ‘air on inevitability’ about it all. The fascinating thing for me was that this historic political vote was coinciding perfectly with a potential breakdown in a chart that had been playing out over roughly the same time frame… since 1975.
Indeed, you can take a look at the chart I’m referring to for yourself here:
Even if you’ve never used technical analysis, you can probably see the head and shoulders patter there: two similar ‘shoulder’ arcs with a higher ‘head’ arc between them.
More importantly, you can see how the ‘neckline’ was breached post-Brexit.
Technical analysis of this particular pattern suggests it’s got much further to fall.
Indeed, tomorrow I’ll explain exactly where this could be going and how I see it playing out.
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