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Weekend Market Analysis 26 Mar 2017

Mar 26th, 2017 No comments

Since the US rate hike last week the US$ has continued to drop and precious metals have continued to rise, while equity markets continued to drift lower.

However, a pivotal point is now reached where reversals might occur.

US$

The US$ index continued down to close the week at 99.44, a shade above the threatening ‘head & shoulders’ formation neckline at 99.25. If it penetrates this level convincingly then further substantial falls to about 95 can be expected, which is all bullish for other currencies and gold. However, the oscillators are in oversold zones and an upward correction is probably more likely.

Bond Market

Bond yields worldwide strengthened this week and extended the sideways drift since mid-Dec 2016. This somewhat retards the conviction that interest rates are increasing and just adds to market uncertainty. Because bond rates did bottom in Jul 2016 and the US is now going to hike rates more in 2017 and equity markets remain elevated with all that knowledge.

Gold Price

The gold price continued to increase after the US rate hike and has moved closer to the previous high and further from the next key support level at $1179.70. It has also penetrated up through 200-Dema.

If the US$ corrects up it may be that gold is likely to move down into a 6 month cycle low during May / Jun.

The gold price moved up this week to close at $1248.50 and it is important that it continues through the next resistance level at $1265, otherwise it may succumb to a downwards correction. The US miners did not end the week as strong as gold and it might be that the bearish divergence between metals and miners may yet bring the metals lower.

 

Silver price

The silver price continued to increase after the US rate hike and has moved closer to the previous high at $18.55 although still some distance away. Like gold, silver is likely to move down into a 6 month cycle low during May / Jun if the US$ corrects up.

For now silver remains well above key support at $16.60.

 

Silver moved up further this week to close at $17.75 and it is important that it continues through the next resistance level at $18.55, otherwise it may also succumb to a downwards correction.

US Gold Miner Index (XAU)

The US Gold Miner Index ($XAU) has enjoyed an upturn since the US rate hike, but it has been sluggish by comparison with the metals. This presupposes that the divergence between metals and miners will therefore continue to exert negative pressure on prices. Notice also that the index closed the week exactly on major support at $84 and that the previous high at $97.50 is far away.

US General Equities

US general equities, as embodied in the Dow Jones Ind Ave, continue to drift lower to close the week at 20597. Where to from here? The chart contains a 2 year view including the inverted ‘head & shoulders’ pattern (in blue) and the upward sloping trading channel (in green).

Inverted Head & Shoulders pattern

This pattern started in Jun 2015 and ended in Jul 2016 and it promised a rise roughly equivalent to the depth of the head. The depth is 2700 points from the neckline (18200) to the base (15500) and when added to the neckline the target is roughly 20900 (18200 + 2700). The Dow achieved the 20900 level and has since drifted to its current 20597.

Trading channel

The trading channel incorporates the rise in the Dow and is illustrated in the 2 green lines connecting the 2 high points and the 2 low points. Interestingly the lower green line meets with and approximates the 200-Dema for the last 5 months, whilst the Dow hovers just above 50-Dema at the moment. The oscillators are in middle ground and the suggestion of this illustration is that the Dow is likely to continue drifting to the bottom trading line which is at 19280 at the moment (another 6.4% down).

 

Conclusion

Since the US rate hike last week the US$ has continued to drop and precious metals have continued to rise, while equity markets continued to drift lower. However, a pivotal point is now reached where reversals might occur.

The US$ index continued down to hover just above the threatening ‘head & shoulders’ formation neckline at 99.25. If it penetrates this level convincingly then further substantial falls to about 95 can be expected, which is all bullish for other currencies and gold. However, the oscillators are in oversold zones and an upward correction is probably more likely.

Bond yields worldwide strengthened this week which somewhat retards the conviction that interest rates are increasing and just adds to market uncertainty, because bond rates did bottom in Jul 2016 and the US is now going to hike rates more in 2017.

Gold and silver prices continued to increase after the US rate hike although divergence with miners continues. Threat of the US$ correcting up remains which would move precious metal prices down into a 6 month cycle low during May / Jun.

US general equities continue to drift lower and are due a further drop to the 200-Dema.

Categories: Currency, Equity, Gold Tags:

Weekend Market Analysis 19 Mar 2017

Mar 19th, 2017 No comments

The US increased rates this week by 25 basis points with the stated intention of probably doing so again this year. Surprisingly, the US$ dropped and precious metals increased, as the rate hike was already fully discounted.

Equity markets responded positively initially but later drifted as the knowledge sunk in that increased costs are not equity friendly and that they do in fact trump euphoria. Precious metals and miners responded positively but the miners turned down at the week end, threatening to once again create a bearish divergent top with metals.

US$

The US$ continues forming its threatening ‘head & shoulders’ pattern and closed the week down at 100.11 with the neckline closing in at 99.25, evidently in response to already fully discounting the rate hike. This is bullish for precious metals and bearish for equity and bond markets, and should the ‘head & shoulders’ neckline be penetrated then the US$ index is likely to drop further to about 95.

Bond Market

The bond market bottomed in Jul 2016 as yields began to move up worldwide, confirming that interest rates have bottomed and that the cycle has turned up. The on-going threatened intentions from the US Fed to increase rates have finally manifested, but the US equity market continues to move up and even their treasury yield increases have stalled. After an initial increase during the 6 months Jul-Dec 2016 treasury yields have moved sideways while the US$ has moved down over the same period. The treasury yields internationally continue to edge up, but not the US.

Gold Price

The gold price turned up after the US rate hike and has moved further from the next key support level at $1179.70. It is now in the vicinity of the 200-Dema with positive momentum.

The gold price has moved up through breached support at $1220 and closed the week above 10- /20- /50-Dema at $1230.20. Whilst positive momentum is moving gold away from lower support levels it is important to note that US miners in the XAU chart turned lower at the week end which could develop into another bearish divergent top with metals. The gold price oscillators are all in mid-range.

 

Silver price

Price has turned up after the US rate hike this week to close at $17.41, marginally above recent support and well within the longer term megaphone pattern.

 

If price drops through this key support at $16.60 then this is likely to lead to much lower prices, magnifying the importance of previous lows at Dec 2016 and thereafter Dec 2015.

The short term silver chart indicates the turn up after the US rate hike penetrated resistance at $17.37 (just) and only closed above 10-Dema, as opposed to gold which closed above all 10- /20- /50- Demas. Both silver and gold increases were along with reduced volumes. The threat of a divergent top with US miners applies equally also to silver.

US Gold Miner Index (XAU)

US miners (in the XAU index) turned up after the US rate hike but moved lower at the week end to close below support at $84, and threaten yet another divergent top with the metals.

US General Equities

US general equities, as embodied in the Dow Jones Ind Ave, are taking a breather in drifting sideways. Open gaps were created in the hectic advance and these probably all need closing with the first larger one already achieved and the second smaller one yet to be closed at about 20650.

Despite falling volumes during the hectic price advances the slight decline now is with increasing volumes. All other indications are for the price advance to continue except for the interest rate cycle which has turned up and is equity unfriendly.

Conclusion

The US increased rates this week by 25 basis points with the stated intention of probably doing so again this year. Surprisingly, the US$ dropped and precious metals increased, as the rate hike was already fully discounted. The US$ therefore continues forming its threatening ‘head & shoulders’ pattern and should the neckline be penetrated then the index is likely to drop further to about 95.

The bond market bottomed in Jul 2016 as yields began to move up worldwide, confirming that interest rates have bottomed and that the cycle has turned up.

Gold and silver prices turned up after the US rate hike and positive momentum is moving them away from lower support levels. Both did so with reduced volumes, and the threat of a divergent top with US miners still applies as US miners (XAU index) turned lower at the week end.

Equity markets responded positively to the rate hike initially but later drifted as the knowledge sunk in that increased costs are not equity friendly and that they do in fact trump euphoria.

Categories: Currency, Equity, Gold Tags:

Weekend Market Analysis 12 Mar 2017

Mar 12th, 2017 No comments

Precious metals and miners should probably reach interim daily lows soon, and performance through the rest of Mar should define behaviour through the next 3 months. Much may depend on definition of the gold 8 year cycle lows, and whether Dec 2015 stands or whether prices fall away to yet lower lows.

Key indicators this week are the US$, US Gold Miner Index (XAU), and the gold 8 year cycle low which need to be evaluated.

US$

The US$ continues forming its threatening ‘head & shoulders’ pattern and closed the week down in spite of the ‘good’ US jobs report on Friday clearing the way for the US rate hike next week. The index closed the week with another ‘Evening Star’ pattern, as it did last week. This behaviour is counter to the more ‘hawkish’ US Fed and its planned rate hikes this year.

The US$ is poised to either break up to about $108 (in accordance with the triple top breakout and ‘hawkish’ US Fed stance) which will be bad for gold, or to break down (in accordance with certain Elliott Wave predictions and Donald Trump’s need for a weaker Dollar) which will be good for gold. US$ behaviour this week is in accord with the latter of these 2 options.

Gold Price

The gold price has broken down through resistance and its reversal is gaining momentum. The next key support level is at $1179.70 and any close below would magnify the importance of previous lows at Dec 2016 and thereafter Dec 2015.

The gold price has dropped below the short term support trendline and support at $1220. The next key support is at $1179.70 and any close below that will bleed away to lower prices.

It is now critical to evaluate US miners in the XAU chart as well as the situation with respect to the gold 8 year cycle lows. Despite the good US jobs report clearing the way for a rate hike next week gold rose slightly in the last hours of the week.

 

Silver price

Price has reversed down below resistance and is gaining momentum towards the next key support level at $16.60.

 

If price drops through this key support at $16.60 then this is likely to lead to much lower prices, magnifying the importance of previous lows at Dec 2016 and thereafter Dec 2015.

US Gold Miner Index (XAU)

The US Gold Miner Index ($XAU) closed the week with a relatively strong Friday, having just closed the outstanding gap from Dec 2016. This provides a very early sign of an interim reversal. Much is still to be achieved and the index needs to exceed resistance at 91 if the 20 Dec 2016 low is to be retained.

Gold 8 Year cycle low

The gold 8 year cycle low theory has stood the test of time since Aug 1971 when Richard Nixon de-linked the US$ from Gold convertibility and allowed gold to rise and fall freely. In that process the gold price has risen from about $35 to about $1200 in a rising curve that has dropped to a low point every 8 years within 6 months of US presidential elections.

Those cycles have reached low points within as short a cycle of 30 quarters and as long a cycle as 34. Converting the quarters into months we get an average of about 97 months, from as short a cycle as 90 months to as long a cycle as 104.

The cycle low in 2008 was very early and the cycle low this time appeared to be even earlier, at about 12 months too soon in Dec 2015. This was considered justifiable because of the atrocious condition the central banks of the world have driven economies and the international monetary system itself, in astronomic debt levels, low to negative interest rates, money printing, and the like. The degree to which the gold price has currently dropped has caused doubt as to whether in fact Dec 2015 was the 8 year cycle low and whether the 8 year cycle low itself still even exists.

Perhaps the early low in 2008 will now cause a very late low in 2017. Or perhaps world conditions will cause the very early low in Dec 2015 to in fact be the low, and that the gold price will not even break down below the Dec 2016 low. If the gold price does break down below Dec 2015 and set a cycle low (estimated probably at 200-Dema at just below $1000), and the historical time frames are adhered to, then the 34th quarter is April – June 2017, and the 104th month (97 + 7) is June 2017.

We need to watch prices very carefully during Mar to either confirm or deny Dec 2015 or Jun 2017.

Conclusion

Precious metals and miners should probably reach interim daily lows soon, and performance through the rest of Mar should define behaviour through the next 3 months. Much may depend on definition of the gold 8 year cycle lows, and whether Dec 2015 stands or whether prices fall away to yet lower lows.

The US$ continues forming its threatening ‘head & shoulders’ pattern although it is poised to break up or down. The US rate hike next week seems to have little effect on the market and has evidently been priced in long since.

Gold and silver prices have broken down through resistance and any close below the next key support levels would magnify the importance of previous lows at Dec 2016 and thereafter Dec 2015.

The recent divergent top requires close attention to miners, and the US Gold Miner Index ($XAU) closed the week with a relatively strong Friday, having just closed the outstanding gap from Dec 2016. This provides a very early sign of an interim reversal but much is still to be achieved.

The gold 8 year cycle low theory has stood the test of time since Aug 1971 and if the current cycle low is to still occur below Dec 2015 price then, if at all, this is likely to happen before the end of the 34th quarter before 30 Jun 2017 (estimated probably at 200-Dema at just below $1000).

General equities and oil remain overpriced.

Categories: Currency, Gold Tags:

Weekend Market Analysis 5 March 2017

Mar 5th, 2017 No comments

The ‘Divergent Top’ in the Gold market caused gold miners to drop sharply, and they need to break up through key resistance levels or potentially drop further to test 20 Dec 2016 lows.

A key indicator is the US Gold Miner Index chart (XAU) and failure to close above the 91 level within the next 2-3 weeks will lead to lower prices supporting a May low. In the meantime miners should partially recover in an attempt towards the breakpoint, but failure to exceed 91 will be the deciding factor.

The  rate hike in March could send miners below their December lows, so price behaviour in March will reveal critical supportive evidence.

Gold Price

The gold price has reversed down below its breakout resistance level at $1243, in response to the negative ‘Divergent Top’ with miners. In doing so it has penetrated the short term support trendline (see 3 month chart) although remaining well above the long term support trendline.

The oscillators have turned down away from the approaching overbought zone although with a slight uptick in volume.

The gold price has dropped below 10- / 20-Dema in response to the negative ‘Divergent Top’ with the miners but has also now started the process of voiding the divergence with the miners. It has dropped below the short term support trendline.

Just as Europe closed on Friday “somebody” sold over $2 billion notional silver futures, about 115 million ounces at one shot. Silver dropped 72¢ & gold dropped $17, but in the aftermarket gold surged to $1,234.00 and silver to $17.95, moves that strongly suggest scared shorts closing out the week’s positions.

Therefore despite the US Fed change from slightly ‘dovish’ to slightly ‘hawkish’ this week the inherent strength in the precious metals complex remains, probably due to the power of the 8 year cycle lows.

 

The US rate hike in March is a threat.

US Gold Miner Index (XAU)

The downturn in price extended further this week, closing below 10- /20- /50-Dema as it approaches the low reached on 20 Dec 2016. The oscillators are in oversold positions although yet lower lows seem likely. A turnaround here is required and the index needs to exceed resistance at 91 if the 20 Dec 2016 low is to be retained.

 

Silver price

Price has reversed down below its breakout resistance level just below $18, as well as back into the 8 month megaphone pattern, in response to the negative ‘Divergent Top’ with miners. In doing so it has not penetrated the short term support trendline (see 3 month chart) and therefore appears somewhat stronger than gold.

The oscillators are in neutral territory although with a slight uptick in volume.

 

The short term 3 month chart illustrates the price drop to below 10- / 20-Dema although still above the short term support trendline.

 

US$

The US$ continues to approach finally forming a very threatening ‘head & shoulders’ pattern stretching back to mid-Nov 2016. The US$ Index dropped on Friday (surprisingly) to close at 101.55 with the H&S neckline at 99.25, and the chart indicates a bearish ‘Evening Star’ candle formation at the end of the week. This all in spite of a pending rate hike in March and a more ‘hawkish’ US Fed.

US General Equities

US general equities remain elevated for now with every indication of continued strength. However, the continued fall in volume remains and the US Fed will increase rates in March with a more ‘hawkish’ stance which now indicates perhaps more than the 3 rate hikes for 2017.

 

The short term 2 month chart indicates the sequence of higher highs and higher lows has been interrupted, as the hectic price increases seem to have abated for now. The oscillators are all overbought and a correction is due anytime.

 

US Discretionary / Staple Sector Analysis

An interesting aspect to the US equity market is provided by an analysis of the Consumer Discretionary Sector / Consumer Staple Sector, which provides an insight of the demand for discretionary purchases over that of staple purchases. The theory is that in a recession or depression the likelihood of buying a new car or jewelry reduces while you continue to buy bread and baked beans. It therefore provides a view of ‘rising affluence’ over ‘falling affluence’ which in turn reflects in a rising or falling stock market. It is also said this indicator is never ‘wrong’.

Note that this indicator:

  • lost relative support in late 2007 as the ‘Global Financial Crisis’ kicked in;
  • rose in a broad band as positive support built up indicated in blue;
  • started to falter and fall towards the end of 2015 indicated in red, as the indicator turned negative;

 

A much closer look at this indicator in a 4 month chart shows the negative divergence against the Dow Jones Ind Ave which is intensifying. This is yet another indication that a strong downward correction in the general US equity market is due anytime soon.

Conclusion

Gold and Silver prices dropped sharply in response to the ‘Divergent Top’ with miners which are liable to drop further to test earlier lows unless they break up through resistance. The US rate hike in March may further negatively impact this situation.

Gold and silver prices have reversed down through breakout resistance levels to start the process of voiding the ‘Divergent Top’ with miners, although there still appears to be inherent strength in the metals despite the US rate hike in March and a more ‘hawkish’ US Fed. It remains to be seen whether metals weaken further or whether miners reverse up above resistance to prevent testing previous lows.

The US$ continues to approach finally forming a very threatening ‘head & shoulders’ pattern although the US rate hike may invalidate this in a stronger Dollar.

US general equities remain elevated for now with a correction overdue because of continued fall in volume plus a rate hike in March and a more ‘hawkish’ US Fed.

Categories: Currency, Equity, Gold Tags: