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Weekend Market Analysis 26 Mar 2017

Mar 26th, 2017

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.

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