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Weekend Market Analysis 25 Mar 2018

Mar 25th, 2018

Executive summary

 World equity markets all moved down significantly this week, with an increased degree of US arrogance, as negative signs start to proliferate. The US hiked the rate this week and continues to shake the world trade order by raising tariffs, whilst Trump signed a $1.3trn spending bill on Friday. There is indeed a dark and terrifying future ahead as the crashing markets are greeted with nothing more than a gigantic yawn. The US bond market yield continues to consolidate with the benchmark 10 year US sovereign bond closing at 2.82% with a bottom at 2.80% and projected to move up to 3.0% and then 5.0%, destroying all asset values in its path.

The US$ index moved down this week to close at $89.03 but with no corresponding strength in the Euro it keeps alive a meaningful Dollar rally. Conversely, the Jap Yen continues to strengthen against the Dollar, breaking to a new high at 104.81 Yen / US$1, which supports a continuing weaker Dollar as well as stronger gold. Gold closed up at $1349.90 and even the US miners closed up which all looks promising. However, silver continues to underperform gold which retards the whole complex, but the gold / silver ratio is due to start turning down with the silver price ‘coiled’ and overdue for a resurgence.

Much depends on Dollar movements in the short term.

 

US$

The US$ index continued to move down this week to close at $89.03, and in the process broke below the previous low into the support zone. Correspondingly, the Euro / US$ gained this week but failed to break up, which keeps alive a meaningful Dollar rally. Conversely, the Jap Yen continues to strengthen against the Dollar, breaking to a new high at 104.81 Yen / US$1, which supports a continuing weaker Dollar.

The US rate hike did little to support the Dollar and US Fed commentary seems to suggest that the likelihood of 4 hikes this year may only turn out to be 3. The chart structure looks more bearish than bullish and the chance of rallying to the erstwhile resistance target of $91.5 now looks unlikely.

The oscillators are dropping to support further Dollar weakness.

 

 

 

The long term picture in the 14 year chart illustrates the US$ rally petering out to close at the bottom of the consolidation at the interim support level (black). Also, a ‘dead cross’ is forming with 50-Wema about to penetrate 200-Wema suggesting more downside.

Fundamentally, the range of negative pressures continue to mount by creating trade wars and other huge expenditures like the $1.3trn spending bill signed on Friday, which all end in increased deficits, rising inflation, and a weaker Dollar.

 

 

 

Japanese Yen

The Jap Yen strengthened to a new high this week against the US$ by breaking down through the previous low to close at 104.81 Yen to the Dollar. This presupposes a continued weaker Dollar and stronger gold price. The oscillators turning down to suggest this continues.

 

US Treasuries

The US bond market yield continues to consolidate with the benchmark 10 year US sovereign bond closing at 2.82% with a bottom at 2.80% and projected to move up to 3.0% and then 5.0%, destroying all asset values in its path.

The ‘pause and wait’ attitude of the consolidation in the yield is caused partly because of the strong climb up to that level but also because with the stock market collapsing there is a flurry of switching from stocks to bonds as a safe haven.

 

 

 

Gold

The recent stronger gold price and bond yield consolidation is causing the small right shoulder in the H&S pattern to close quicker in the chart of the Gold / US 10 year bond yield ratio. This is bullish for gold in the meantime, but the chart climb will be retarded as the bond yield restarts its climb. The implication in breaking the neckline of the H&S pattern is that the ratio will climb by the depth of the head, which will eventually take the ratio up to 16+.

 

 

Gold punched up through the previous high to close at $1349.90 in its duel between support and the cycle highs at $1367.50. It has moved decisively above the moving averages with 3 successive closes above 10-Dema. The oscillators are rising fast which supports more upside.

 

 

 

The 3 year weekly gold chart illustrates the price move closer to main resistance well above the moving averages, as well as the ‘Gold cross’ which developed in Sep last year, promising higher prices. The chart structure illustrates clearly the diagonal support lines (blue) which appear safe from attack with each passing week.

The oscillators are turning up in preparation for testing the main resistance line above.

 

 

 

The gold price is now closing in on the neckline of the massive 5 year long Pentagon Base Pattern with the target breakout at $1375. Penetration through this level should take the gold price up by the depth of the pattern towards the region of $1800.

 

 

 

GDX US miners ETF

US miners closed up on the week at $22.12 into the resistance zone (green), but with an indecisive Friday candle after creating a small gap which needs to be filled. This is good news on balance but might only be a hesitant small beginning. A substantial support base has been developed and downside might only be minimal from here.

The oscillators are positive.

 

 

The longer term GDX chart illustrates the strong support base above the support line and the potential for upside from here. The oscillators are also turning up. The 15 month range-bound pattern does need to be broken and the resistance line is some way up still.

GDX is somewhat coiled to respond upwards powerfully in due course once the gold triggers are ignited.

 

DUST US Gold Miners bear index

Dust penetrated decisively down through the bottom of the triangle but, like GDX, has created a gap which needs to be closed. The oscillators are pointing down illustrating further downside.

 

Silver

Silver moved up this week to close at $16.58 and continues to build a substantial support base between short term support and resistance in a highly ‘coiled’ price that will spring up powerfully once the gold / silver ratio starts to reverse down.

 

Gold : Silver Ratio

Silver continues to underperform gold with the ratio still above 80, in a chart structure that needs to be broken before the whole precious metals complex can move up energetically. But lower highs are becoming evident over the last 7 trading day (blue), and this might just be the beginning of a long overdue reversal.

The trigger for penetration through the bottom of the rising wedge is 77.

 

General Equities

World equity markets all moved down significantly this week as negative signs start to proliferate. The Dow Jones plummeted down through the bottom of the triangle in dropping 5.67% this week with more to come next week. There is indeed a dark and terrifying future ahead as the crashing markets are greeted with nothing more than a gigantic yawn.

 

The bottom is about to fall out of the American market as all the factors are in place to complete the set-up. We all know that as the US collapses so too will the rest of the world. The Dow closed at a new low on Friday which dropped below the Nov 2017 low, and this indicates the underlying weakness in the chart structure. There is a zone of some support (red) between 23650 and 23250 and if the Dow penetrates this (as seems very likely) then there will be serious further declines.

The oscillators are now dropping fast.

 

The VIX moved up rapidly this week to close at 24.87, indicating much higher volatility. It touched the previous high at 26.3 and appears set to penetrate this level which indicates much higher volatility and lower stock market prices.

 

 

 

 

 

 

 

 

 

 

 

 

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