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Midweek Market 28 March 2019

Mar 28th, 2019 No comments

Executive summary

This summary of global markets is adapted mostly from original thoughts by Alasdair Macleod at Goldmoney.


The global economic outlook is deteriorating with some countries now in recession and the US also signalling a looming recession with many commentaries alerting the yield curve inversion. In conditions like these Government deficits will escalate. Foreigners have already begun liquidating dollar assets, adding to future funding difficulties in the US. The next wave of monetary inflation, required to fund budget deficits and keep banks solvent, will not prevent the severe bear market that lies ahead, because the scale of monetary dilution will be so large that the purchasing power of the dollar and other currencies will be undermined. Failing fiat currencies suggest the dollar-based financial order is coming to an end, but with few exceptions, most investors own nothing more than investments based on fiat-currencies.


The global economy is at a cross-road, with international trade stalling and undermining domestic economies. Major central banks, notably in the EU, Japan, and UK were still easing their economies by suppressing interest rates, and the ECB had only stopped quantitative easing in December. The US and China had been tightening in 2018, and China quickly started stimulating in November, while the US Fed has now paused monetary tightening, pending further developments.


It is very likely this new downturn will be substantial. The coincidence of trade protectionism at the top of the credit cycle last occurred in 1929, and the subsequent depression was devastating. The reason to be worried today is stalling trade disrupts capital flows that fund budget deficits, particularly in America where savers do not have the free capital to invest in government bonds. Worse still, foreigners are now not only no longer investing in dollars and dollar-denominated debt, but they are suddenly withdrawing funds. According to the most recent data, in December and January these outflows totalled $257.2bn. At this rate, not only will the US Treasury need to fund a deficit likely to exceed a trillion dollars in fiscal 2019, but US markets will need to absorb substantial sales from foreigners as well.


In short, America is going to face a funding crisis coinciding with the top of the credit cycle: A lethal combination. The problem is bound to manifest in coming months, and is as yet still unrecognised as the most important factor behind both American and global economic prospects.
While today’s trade protectionism is less vicious than the Smoot-Hawley Tariff Act of 1929, America’s drawn-out trade threats today are similarly destabilising. The top of the credit cycle in 1929 was orthodox, but this time the credit bubble is proportionately far larger, and its implosion threatens to be even more violent. Government and consumer debt is enormous everywhere and personal savings in America, UK and EU is practically non-existent. So, the potential for a systemic crisis is therefore considerably greater today than it was ninety years ago.


The Dow Jones dropped 90% from its peak in 1929, and comparison with these empirical facts suggest we might now suffer a similar collapse in financial asset values in the next number of years. However, there is an important difference between then and now:
• In 1929 the dollar was on a gold standard, with the price-effect of the depression reflected in the rising purchasing power of gold;
• In 2019 no fiat currency is gold-backed, so a major collapse will be reflected in the falling purchasing power of currencies;

Government finances and its un-backed currency determines general price levels, and if you take the US dollar for example, the government’s debt to GDP ratio is more than 100% whereas in 1929 it was less than 40%. At the peak of the credit cycle, the government should have a revenue surplus reflecting underlying full employment and peak tax revenues. In 1929, the surplus was 0.7% of estimated GDP; today it is a deficit of 5.5% of GDP. In 1929, the government had minimal legislated welfare commitments, the net value of which was therefore trivial. Today, the present value of future welfare commitments is staggering, and estimates for the US alone range up to $220 trillion, before adjusting for future currency debasement.


Other countries are in a potentially worse position, particularly in Europe. A global economic slump on any scale, let alone that approaching the 1930s depression, will have a drastic impact on all national finances. Tax revenues will collapse while welfare obligations escalate. Some governments are more exposed than others, but the US, UK, Japan and EU governments will see their finances spin out of control. Even assuming responsible stewardship by politicians, the expansion of budget deficits can only be financed through monetary inflation. This is the debt trap, and it has already sprung shut on minimal interest rates.


For a temporary solution, governments can only fund runaway deficits by inflationary means, as the inflation of money and credit is the central banker’s only cure-all for everything. Inflation is not only used to finance governments but to provide the commercial banks with the wherewithal to stimulate the economy. An acceleration of monetary inflation is therefore guaranteed by a global economic slowdown, so the purchasing power of fiat currencies will take another lurch downwards as the dilution is absorbed.


That is the motivation to invest in physical gold, which is the only form of money free of all liabilities. Also, the value of Gold benefits twice against the loss of purchasing power in a fiat currency during a slump, because gold’s own purchasing power will be rising at the same time as the currency value drops. Also, the ongoing process of fiat currency devaluation is about to accelerate.


Chart 1 shows how four major currencies have declined measured in gold over the last fifty years. The yen has lost 92.4%, the dollar 97.42%, sterling 98.5%, and the euro 98.2% (prior to 2001 the euro price is calculated on the basis of its constituents).


Note the vicious logarithmic scale on the Y-axis.

The ultimate bankruptcy of countries in the forthcoming slump, will be reflected in another lurch downwards in currency purchasing powers.

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US Dollar

The dollar index continues to strengthen within the rising wedge assisted by the bullish Hammer which promises a further upside. This is despite the continued negative divergence with the MACD and the somewhat lethargic oscillators.

The 12 month chart illustrates the strong bounce up from 200-Dema, which repeats all the earlier attempts at penetrating down during the last year. Also, the oscillators are rising which promises further gains.


The market favours the stronger of the two competing Elliott Wave possibilities for the dollar looked at last week, and consequently we will exclude the weaker one for the time being, until proved incorrect.

The stronger option indicates completion of the barrier triangle from (A) down to (B) (having completed ABCDE), with a catapult up to (C) at or close to $100.00. This seems to have started with a strong bounce up from E.
This has major implication for markets, especially gold. The projection remains valid for penetration through the barrier above and becomes invalid with penetration down through the bottom incline ACE.

The short term 3 month chart illustrates the strong bounce off support (and 200-Dema), although the rise may be delayed by the negative end candle (long shadow above). The oscillators also have assumed a dithering appearance.

Japanese Yen

The US$ / Yen has a breakout both through 200-Dema as well as the flag pattern, together with a reversal break back attempt. This includes a strengthening Yen followed by some weakness. If the US$ barrier triangle option plays out to completion, then this will result in a much weaker Yen, together with its implications for a weaker gold price.
Both oscillators are turning up which supports this proposition.

US Treasuries

The benchmark US 10 year Treasury has strengthened, dropping yield below the previous low. This has required a new Elliott Wave count with a new wave 2 at a lower yield, which may or may not be complete. Investor sentiment is at a high 93% bond bulls, measured by the DSI, which indicates the bond rally is probably close to completion. Once complete, obviously bonds will decline and yields will advance, probably to resume the earlier collapse in the bond market which has been disrupted by partial ‘inversion’ triggered by activity in the shorter term US Treasuries and a lot of popular media hype threatening the next US recession.

The Cots data for the US 10 year Treasury reflects on the chart as a bearish convergence which indicates lower prices and higher yields, supporting the Elliott Wave view.

US Yield Curve

The official yield curve calculated on the 10 year and 2 year is still drifting sideways at 1.077, and is still some way off the inversion trigger at 1.0 or below. There is probably little doubt that global recession is coming and the media hype of inversion (usually indicating recession) is due to the shorter term Treasuries such as 3 month and 6 month, etc.

Gold

The 5 year gold chart illustrates the historic 6-month cycle lows, with the next cycle low in progress, despite the current rally over the past 4 weeks. This and the previous 6 month cycle low has been slow in coming (at closer to 9 months) but with the anticipated stronger dollar the next gold low should be factored into planning.

The 3 year chart illustrates Gold still moving sideways, although with lengthening negative shadows developing in the last few candles which should develop into lower prices. The chart is otherwise displaying a neutral bias.
US miners (GDX, HUI, etc) still outperform gold which is positive, but Silver is underperforming gold which is negative. Also, there is a non-conformance between Silver and Gold including gold derivatives, in that silver is below its 200-Dema gold above. This is another indication of a trend change and lower prices.

The 12 month chart illustrates gold advancing up in a bear flag while it turns down at the top back towards the 1st support zone. It is likely to break out of the bear flag and penetrate into the support zones. It is still well above 200-Dema but both oscillators are beginning to turn down negatively.

The 3 month gold chart illustrates the short term counter rally as it moves within the bear flag. This is likely to break to the downside, as both oscillators also start turning down.

South African Rand

The South African Rand has weakened as it moves further up the rising wedge pattern to a region of stronger resistance. Both oscillators have stalled as we await Moody’s rating tomorrow.
The stronger dollar will weaken the Rand further.

HUI / Gold Ratio

The ratio displays a strong 6 month rally up into earlier resistance, as US miners outperform gold. This was probably significantly motivated by moves out of general equities into miners pending a variety of impact factors such as, top heavy US equities, looming US recession, discounting the next US Fed rate cut/s, etc. The ratio now reflects an overbought situation, stronger dollar and weaker gold in the next period, etc. that will precipitate a substantial retracement down.

HUI Index

The HUI index itself is behaving in similar fashion with similar commentary, yet in a chart indicating less positive bias. However, it is similarly overbought and will also be subject to a substantial retracement down.

GDX US miners ETF

The GDX 12 month chart is similar to the HUI Index chart, and the commentary is identical.

DUST US Gold Miners Bear Index

The Dust chart and commentary is similar to the GDX chart, except in the opposite direction being a US miners bear index.

Silver

The 3 year chart continues to have a negative bias as silver continues to reverse up from support in a bear flag as it continues to underperform gold. Silver is likely test lower support levels after a breakout from the bear flag, with both oscillators dropping in support of this.

The 12 month chart illustrates silver dropping below 200-Dema again as the non-conformance with gold and gold miners continues with gold above 200-Dema. This is the prelude to further price declines in Silver as well as the whole precious metals complex.

The 3 month silver chart illustrates the confines of the bear flag and the position of the MAs more clearly. The oscillators are starting to turn down in support of lower prices.

Gold : Silver Ratio

The gold / silver ratio is rising to close at 85.66. This reflects the continued silver underperformance of gold which is negative for the whole precious metals complex. The rising wedge pattern continues and seemingly has a way to go yet which presupposes continued lower precious metal prices.

General Equities

US equities abound in continued major indices non-conformances, and this indicates a trend change to the downside. The Dow Jones maintains its profile of lower highs which are gradually conforming to lower lows as well, and final penetration of the preceding lows marked in red, will confirm the start of a serious decline.

The Elliott Wave counts are such that the next decline will be wave iii (circle) which will take the index below the Dec 2018 lows.

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Midweek Market 21 March 2019

Mar 21st, 2019 No comments

Executive summary

The US stock market is clearly not going to top based upon the Fed’s balance sheet or rate manipulation, nor upon stock earnings, nor upon economic fundamentals. Rather, it will top and turn down when bulls run out of money. Stock markets top due to a lack of buying when market sentiment is at extreme bullishness, with bulls “all-in” with no more money allocated to buying. The market seems to be approaching such a point.


Last week was one of the largest inflows into US equities with over $25B, being the 4th largest weekly inflow on record, resulting in a powerful worldwide b-wave rally off the December low. This equates to a top in the Dow at about 26250 (during this week or next), to complete its corrective rally, with the next decline to the region of 21000 to complete the abc pattern off the Oct 2018 high.


This will also be a major buying opportunity. But will it then lead on to an abysmal bear market as predicted by the leading Elliott Wave practitioner, or will it perhaps still go higher to 30000 or even 35000 by 2022-2023 before the bull market that started in 2009 finally tops out. Activity during much of the next 2 years will clarify this.

Gold rallied strongly from Aug 2018 to its recent peak at $1347 in late Feb 2019, while US equities declined to the start of 2019 and then rallied strongly since: Illustrating their inverse correlation with gold now pointing down and equities up.


During this period US miners (GDX) have outperformed gold but have started to decline against equities since the start of 2019. The implication here is not favourable for gold because, despite the miners outperformance against metals, a necessity for the start of the metals bull market is outperformance against general equities. That is only likely to coincide with the US Fed shifting its stance from pausing to actually cutting rates.


Please note the sharp upturn in the gold price (from $1301 to $1320) was not yet available in the charts for this report.

US Dollar

The dollar index extended its decline through the bottom of the rising wedge pattern, based on the US Fed pronouncement on Wednesday not to raise rates again during 2019. This is a bearish signal and the dollar looks set to decline further.

The 12 month chart illustrates the extent of the dollar decline which broke down through 200-Dema. This has occurred in the recent past and acts as resistance for a rebound rally, as can be seen.


There are now actually 2 competing Elliott Wave possibilities for the dollar and we need to watch this carefully as it develops further, having profound effects on the markets (particularly gold): Either continuing down or rallying up. Note the 2 options in the next 2 charts.

Option 1 indicates further declines having completed the rise to B at $97.71 on 7 Mar 2019. This will now lead to further declines to C somewhere below A. This will also complete the decline from (A) down to (B) which will precede an eventual rise to (C) above B.

Option 2 indicates completion of the barrier triangle from (A) down to (B) (having completed ABCDE). The implication here is the resultant strong rally to (C) at or close to $100.00.


Only one of these 2 options will be correct, invalidating the other.

The short term 3 month chart illustrates the strong decline, including 9 consecutive down days, eventually penetrating 200-Dema in a region of relatively high resistance. The Slow Stochastic is at the bottom of its range.

Japanese Yen

The Yen has a breakout through its bull flag and has also penetrated 200-Dema. Both oscillators are declining which supports continued dollar weakness and Yen strength, and this is somewhat accelerated by the breakouts.

US Treasuries

The benchmark US 10 year Treasury yield is continuing to show weakness and has in fact broken to a new low. Yield direction is certainly mixed, with fundamentals supporting further weakness (in line with no further US rate hikes) whilst Elliott Wave is indicating a resumption in yield increases (even exceeding B (circle) in the next wave).

The Cots data for the US 10 year Treasury reflects on the chart as a bearish convergence which indicates lower prices and higher yields, supporting the Elliott Wave view.

Gold

The 5 year gold chart illustrates the historic 6-month cycle lows, with the next cycle low in progress, despite the current rally over the past 3 weeks. Continued lower volumes persist in this rally which suggest lower lows lie ahead.

The 3 year chart illustrates Gold dropping down towards support, despite the current rally, and it should continue lower with both oscillators dropping in support of lower prices.


Gold rallied strongly from Aug 2018 to its recent peak at $1347 in late Feb 2019, while US equities declined to the start of 2019 and then rallied strongly since: Illustrating their inverse correlation with gold now pointing down and equities up.


During this period US miners (GDX) have outperformed gold but have started to decline against equities since the start of 2019. The implication here is not favourable for gold because, despite the miners outperformance against metals, a necessity for the start of the metals bull market is outperformance against general equities. That is only likely to coincide with the US Fed shifting its stance from pausing to actually cutting rates.

The 12 month chart illustrates gold advancing back up out of the 1st support zone, with the support of both oscillators rising. Gold is well above 200-Dema in a 6 month long rally, but is still likely to drop down into the 2nd support zone as it completes the current 6 month cycle low.

The 3 month gold chart illustrates the short term counter rally as it bounces off support at $1276 in a developing bear flag.

South African Rand

The South African Rand has broken down to the bottom of the new rising wedge pattern, as both oscillators decline is support of a stronger Rand.
Much now depends on dollar movements which overrides everything. Also, political and economic fundamentals are not improving yet with South Africa and Eskom and much depends on Moody’s rating on 29 March.

HUI / Gold Ratio

The ratio continues in a 6 month long rally up to test resistance now only slightly higher up, after bouncing up off a confluence of 50- and 200-Dema. Both oscillators are tending sideways.

HUI Index

The HUI index itself is behaving in similar fashion, yet less positively with the beginnings of an ominous H&S developing. There is a bullish Engulfing candle however and probably more upside before likely testing support again. The oscillators are drifting sideways.

GDX US miners ETF

The GDX 12 month chart is similar to the HUI Index chart, and the commentary is identical.

DUST US Gold Miners Bear Index

The Dust chart and commentary is similar to the GDX chart, except in the opposite direction being a US miners bear index.

Silver

The 3 year chart continues to have a negative bias as silver continues to reverse up from support. It is likely to continue testing support as both oscillators continue declining. The confining parameters of the chart remain diagonal resistance and the multi-year base at $14, which hopefully will hold during the coming phase.

The 12 month chart illustrates silver starting to rally out of support at the confluence of the MAs. Both oscillators are turning up, but silver is still likely to drop back down to test both support zones as and when it penetrates below 200-Dema.

The 3 month silver chart illustrates the short term counter rally as silver moves up in a developing bear flag. Both oscillators are turning up as silver tries to push up through the confluence of MAs.

Gold : Silver Ratio

The gold / silver ratio is mixed as it continues to work its way up the bear flag in closing slightly higher on the week at 84.98. The general drift therefore is towards silver underperformance of gold which is negative for the whole complex.


Silver outperformance of gold is dependent on a breakout down through the bear flag and then the rising wedge pattern.

General Equities

US markets are enjoying a 13+ month high in equity investor optimism (Daily Sentiment Index at 90%) plus a bond market volatility collapse to a record low (Merrill Lynch MOVE Index 43.7) which presents as a significant confluence of impacts with investors holding markets aloft at extreme levels of euphoria. US equities abound in major indices non-confirmations which are typical of trend changes like the one in progress now.

Markets top and turn down with sentiment at extremes with bulls “all-in” with no more money allocated to buying. The market seems to be approaching such a point. The powerful worldwide b-wave rally off the December 2018 low is in with the Dow at 26250 and the next wave down has started to complete the c-wave (down to the region of 21000 in The Dow) to complete the abc pattern off the Oct 2018 high.

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Midweek Market 14 March 2019

Mar 14th, 2019 No comments

Executive summary

Global optimism is at a 30 month low, as reported by business conditions survey from IHS Markit. While the sentiment among developed nations globally continues to deteriorate, the US remains the most upbeat relative to the rest:
• In Europe sentiment has fallen to the lowest level since 2013, with the European manufacturing sector specifically the lowest since 2012;
• The UK has seen confidence drop to a record low, although mostly attributable to Brexit concerns;
• Japanese companies were the least confident globally as sentiment in the manufacturing sector fell to the lowest level since the survey began in 2009;
• In China, economic data released last week is drastically lower than forecast, and this contraction is likely to extend out into much of Asia, and nations participating in the Belt Road Initiative, over the next 3-6 months;
• In the US, the jobs report last Friday indicated 20 000 new jobs against a forecast 170 000. A year ago, Republicans in control of Congress suspended the cap on federal borrowing. The limit was automatically re-imposed on March 1st. Politicians now have a few months to hammer out legislation to raise the cap as the Treasury employs “extraordinary measures” to fend off default. The federal deficit is mushrooming once again. The 2017 tax cuts have taken a bite out of receipts at the IRS and economic growth has not met expectations. This year’s borrowing to fill the gap between government tax revenue and expenditures may reach a trillion dollars for the first time since 2012.

Notwithstanding, 2019 was going to be the year when the other big central banks joined the US Fed in “normalizing” interest rates in reversing the gigantic QE experiment of the last 10 years. Instead, they are all going back to aggressive easing, and the US Fed is following them. This is a seminal moment in the global financial and monetary system, because they are extending the life of a system that is failing.

Global economic growth and prosperity is not returning, and global sentiment is deteriorating:
• The EU has just announced a major policy reversal introducing a new stimulus package in the face of data which shows a sharp downturn in growth in the euro zone. This after it began tightening In September 2018;
• Japan pioneered QE and negative interest rates, but despite this, speculation began during 2018 that the Bank of Japan would start raising rates (to also start normalising). But it quelled that notion, last Thursday, stating it will continue its monetary easing measures;
• The US Fed, meanwhile, has been the only central bank actually tightening rather than just talking about it. And until very recently Jerome Powell saw the process continuing;
o During Oct 2018 he said he believed the US economy was a long way from neutral (rates neither advancing nor slowing economic growth). That was not well accepted and the stock market fell hard until late Jan 2019 when he took it all back by altering his view;
o But interest rates are only half the issue with money supply being the other half. Money printing is reflected in the Fed’s balance sheet as debt which has ballooned to $4.4 trillion, and unwinding this position from late 2016 at the rate of $50 billion a month has withdrawn substantial liquidity from the market. But it has only therefore shrunk by 10%, and now that is also changing;
o Because, in possibly Jerome Powell’s most significant statement to date, he said last week in a dovish tone that quantitative tightening would end sooner than expected, and that balance sheet shrinkage could be used as an active tool if the economy cries out for help;


What does all this mean? Several things, all of them alarming:
• 10 years into an expansion, with unemployment below 5% and officially reported inflation at the central bank target of 2%, the global economy is still too fragile to apply historically normal interest rates. The structural weakness implied by that is absolutely terrifying;
• If central banks can’t normalize monetary policy now, after 10 years of stimulation, they’ll never be able to. Just consider that for a moment. The old conception of monetary policy is over for the remaining life of the current global financial system;
• Since debt is soaring even in this late stage of the expansion with most people working and paying taxes, the financial headwinds that now prevent rate normalization will continue to strengthen. If 2% inflation is necessary to stave off collapse today, then 3% will be necessary shortly. Then 4% and so on, for the remaining life of this financial system;


How much time is left? Who knows. But it is now fairly safe to assume that this central bank course reversal has ushered in the final chapter.

US Dollar

The dollar index bounced down from resistance this week as it continues to move sideways within a bearish rising wedge formation, whilst the longer term trend towards weakness remains in place. This is still threatened by an Elliott Wave short term alternative option (rising to $100.00) which is, as yet, unconfirmed.

The Elliott Wave alternative count has it that the dollar is in a triangle pattern which could propel the dollar index towards $100.00, based on the completion of the (A)(B)(C) pattern. A decline below $95 will tilt the odds towards weakening and the formal count, whilst an increase above $97.20 will tilt the odds towards strengthening and the alternative count.

The 12 month chart illustrates the dollar bounce down from resistance, away from activation of the trigger for the stronger dollar count to $100.00. The negative divergence in still in place, and both oscillators are declining in support of further weakness.

The short term 3 month chart illustrates the strong bounce down from resistance to close at $96.51, but as long as the dollar remains above $95.824 potential for the stronger alternative to play out still exists.

The Cots data with continued dilation on the chart is supportive of dollar weakness.

Japanese Yen

The US$ / Yen currency pair dropped down from resistance, but still remains within the flag pattern. Both oscillators are declining which supports continued dollar weakness and Yen strength, and this will be accelerated by a downwards breakout from the flag.
Until that happens, the confines of the flag remain in place which means a stronger dollar plus the added threat of a sharply higher dollar, as previously described.

US Treasuries

The benchmark US 10 year Treasury yield is trending sideways to down for now as it becomes increasingly directionless. The US bond market yield bottomed in mid-2016 with increased yields since, but this has been corrupted since Nov 2018 in a pattern of lower yields. If yield increases from here then it will signal a continued collapse in bond prices. However, if yield continues to drift lower from here then it will signal a recovery in the bond market.

The Cots data for the US 10 year Treasury reflects on the chart as a bearish convergence which indicates lower prices and higher yields.

Gold

The 5 year gold chart illustrates the historic 6-month cycle lows, with the next cycle low in progress, despite the small rally over the past 2 weeks. it can also be seen that price movements since the start of 2018 have been accompanied by ever-lower volumes which does not auger well for price strength, and the gold price should now continue down to complete the current 6 month cycle low.

Gold is dropping down towards support, despite the small rally, and it should continue lower with both oscillators dropping in support of lower prices.
It is important to understand Gold’s fundamentals as it will help confirm the new bull market. Until now, Gold rallies have failed to make higher highs and higher lows because, although there has been improvement in fundamentals, the fundamentals have not turned bullish yet.
The technical trigger will be Gold and gold share outperformance of general equities which will likely lead to the fundamental catalyst of US Fed rate cuts. The start of rate cuts will indicate declining real interest rates which is the key driver of gold bull markets.

The 12 month chart illustrates gold dropping down into and back out of the 1st support zone, with both oscillators rising in support. Also, 200-Dema is at $1270 and this is providing additional support. Despite this, gold is still likely to drop down into the 2nd support zone as it completes the current 6 month cycle low.

The 3 month gold chart illustrates the short term counter rally as it bounces off support at $1276.

The gold Cots data is not clear cut, but the trend is bearish. The chart requires dilation for gold declines which is not quite apparent. However, the trend is in that direction with Large Specs (green) trending up (gold bearish) and Commercials (red) trending down (gold bearish). This adds credence to gold declines.

South African Rand

The South African Rand has broken up through the reducing wedge into weakness. In so doing, it is moving up into a new rising wedge pattern, which technically could be bullish eventually, as both oscillators begin turning down in support of Rand strength in due course.
Much depends on dollar movements which overrides everything. Also, political and economic fundamentals are not improving yet with South Africa and Eskom and much depends on Moody’s rating on 29 March.

HUI / Gold Ratio

The ratio has broken up to and turned down from resistance, creating a double top in the process. It is likely to drop lower to test support and both oscillators have increased to the top region of their range.

HUI Index

The HUI index itself is behaving in similar fashion, yet less positively. The rally closed below the previous high, having bounced up off support including 200-Dema, and both oscillators have not increased to the top region of their range. Nevertheless, it is likely to again decline to test support in the next period.

GDX US miners ETF

The GDX 12 month chart is similar to the HUI Index chart, and the commentary is identical.

DUST US Gold Miners Bear Index

The Dust chart and commentary is similar to the GDX chart, except in the opposite direction being a US miners bear index.

Silver

The 3 year chart continues to have a negative bias as silver drops down to and reverses up from support. It is likely to continue testing support as both oscillators continue declining. The confining parameters of the chart remain diagonal resistance and the multi-year base at $14, which hopefully will hold during the coming phase.

The 12 month chart illustrates silver increasing out of the 1st support zone during a short period of slightly outperforming gold as it moved back up above 200-Dema with both oscillators starting to increase. But it is still likely to drop back down to test both support zones if it penetrates below 200-Dema.

The 3 month silver chart illustrates the short term counter rally in penetrating back up above the MAs, together with both oscillators starting to turn up. But, further price declines are probable, as also indicated by the Gravestone Doji closing candle.

The silver Cots data, like, that of gold, is not clear cut. But the trend is also bearish. The chart requires dilation for silver declines which is not that apparent. However, the trend is in that direction with Large Specs (green) trending up (silver bearish) and Commercials (red) trending down (silver bearish). This adds credence to silver declines.

Gold : Silver Ratio

Silver outperformed gold this week with the ratio moving down to close at 84.71, because of the metals rally. Everything on the chart points to a further decline except for the Cots data which indicates the end of the metals rally, and a resultant increase in the ratio.

General Equities

The counter-trend rally in the US equity market is finally signalling a potential end, with a breakout in the bear flag. This is one of the first decline triggers (black circle), with the second decline trigger being penetration of the two earlier lows (red lines).

These triggers will soon provide confirmation of the Dow Jones in decline, as and when the Elliott Wave structure can be determined as 5 wave impulse declines and 3 wave corrective advances. We are nearly there.

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Midweek Market 7 March 2019

Mar 7th, 2019 No comments

Executive summary

A number of issues overhang the markets:
• The US equity countertrend rally is due for a decline after the lengthy rally from Dec 2018;
• US Treasury yields are ready to resume their advance after stalling in Oct 2018;
• US dollar remains below the Nov 2018 high in its long term weakening but is poised to move either above that level or further down, depending on alternative potential;
• Precious metals are weakening after a near 7 month advance to just shy of the 5 year basing pattern neckline;

This is all within a deteriorating global background of slowing economic growth, escalating trade wars or deals, and mounting global debt, in the late stage of the current credit cycle. We await the next US Fed meeting on 20 March for clues regarding the tipping point between QT and QE, and how this may impact all the above.

As this is written, a new ‘easing’ package is announced by Mario Draghi at the ECB to counter economic slowdown in the EU.

These are just some of the issues overhanging the markets, and they remain relatively ‘trendless’ until some of these issues are resolved.

US Dollar

The dollar continues to decline within a bearish reducing wedge formation, whilst the longer term trend towards weakness remains in place. Although this is threatened by an Elliott Wave short term alternative option which is, as yet, unconfirmed.

The Elliott Wave alternative count has it that the dollar is in a triangle pattern which could propel the dollar index towards $100.00, based on the completion of the (A)(B)(C) pattern. A decline below $95 will tilt the odds towards weakening and the formal count, whilst an increase above $97.20 will tilt the odds towards strengthening and the alternative count.

The 12 month chart illustrates the dollar advancing towards resistance at $97.20, beyond which the stronger dollar count will be triggered. The chart does also reveal the negative divergence which will propel the dollar towards weakness.

The short term 3 month chart illustrates the price moves since completing the Elliott Wave ABC pattern. This should normally have seen dollar weakness, which still applies, until an advance above $97.20. Key trigger levels are at the top of support ($95.00) and at the bottom of resistance ($97.20).

Japanese Yen

The US$ / Jap Yen currency pair continues rising in a $ bear flag, pushing up into resistance, reflecting Yen weakness as the dollar strengthens. Both oscillators have strengthened considerably, with the Slow Stochastic at the top of its range, and this should in due course see Yen strength, dollar weakness, and higher gold price as and when there is a breakout from the flag. Until then, the confines of the flag remain in place with the added threat of a sharply higher dollar, as previously described.

US Treasuries

The benchmark US 10 year Treasury yield is trending sideways for now against the Elliott Wave expectation of an increase as wave (iii) starts. The wave (iii) start is sluggish but the small-degree 4(circle) is next to enjoy a 5 (circle) advance, as the wave (iii) develops further. This is wave (iii) of 3 which should in time gather length and strength.

Gold

The 5 year gold chart illustrates the 6-month cycle lows, with the next cycle low due now as gold retraces its recent strong advance. it can also be seen that the decline since the start of 2018 has been propelled by ever-lower volumes which does not auger well for price strength.

Gold is dropping rather quickly towards support in the long term 3 year chart. The oscillators are both dropping in support of further price declines.

The 12 month chart illustrates gold dropping down into the 1st support zone, with every likelihood of dropping down further into the 2nd support zone. The gold price is still above 200-Dema which might provide additional support at $1276.
Both oscillators are dropping in support of lower gold prices, although the Slow Stochastic is down at the bottom of its range which might suggest further price decline hesitancy, for a while.

The 3 month gold chart illustrates the rapid price decline towards the new support level at $1276, where the gold price may get additional support from 200-Dema (at about $1270).

South African Rand

The South African Rand continues to weaken against the dollar as it edges out of the reducing wedge pattern. Note the additional rising wedge pattern beginning to form which may, alternatively, result in a stronger Rand when price drops through the bottom against a weaker dollar if the alternative Elliott Wave count does not materialise.
For now though, both oscillators are rising in support of further Rand weakness. Also, political and economic fundamentals are not improving yet with South Africa and Eskom and much depends on Moody’s rating on 29 March.

HUI / Gold Ratio

The ratio has started to decline meaningfully, and it is likely to penetrate the support zone. It has closed at the region of the moving averages and may receive some additional support there.

HUI Index

The HUI index itself is behaving in similar fashion with the likelihood of further price declines. Whilst closing at 200-Dema, the HUI index is likely to get small support as it moves further into the support zone with both oscillators dropping.

GDX US miners ETF

The GDX 12 month chart is similar to the HUI Index chart except it is yet more positive in its bias, and also still further above 200-Dema. But nevertheless it looks like the next stop is at 20.2 en-route down into the support zone.

DUST US Gold Miners Bear Index

The Dust chart has similar commentary, except in the opposite direction being a US miners bear index. The chart is even more positive than GDX, closing still some way below 200-Dema. But nevertheless it looks like the next stop is at 26.0 en-route up into the resistance zone.

Silver

The silver 3 year chart illustrates silver dropping down towards new support, having penetrated all the MAs. The chart has a negative bias, and the oscillators are dropping in support of lower silver.
Silver had a brief period of outperforming gold recently, but now resumes its role of underperforming, as registered in the gold / silver ratio. The inference here is that precious metals are likely to drop down further.

The 12 month chart illustrates silver dropping down into the 1st support zone, with every likelihood of dropping down further into the 2nd support zone. The silver price is well-below the MAs already and will not get any additional support.
Both oscillators are dropping in support of lower silver prices, although the Slow Stochastic is down at the bottom of its range which might suggest further price decline hesitancy, for a while.

The 3 month silver chart illustrates the rapid price decline towards the new support level at $14.90 which is also not particularly strong. So, further price declines are probable.

Gold : Silver Ratio

Silver continued to underperform gold during the metals rally and will continue to do so during the retracement down. The rising wedge pattern remains inviolate and indicates yet higher ratios and lower metal prices.

General Equities

The counter-trend rally in the US equity market is finally signalling a potential end, with a breakout in the bear flag. This is one of the first decline triggers (black circle), with the second decline trigger being penetration of two lows during Feb 2019 (red lines).

These triggers will soon provide confirmation of the Dow Jones in decline, as and when the Elliott Wave structure can be determined as 5 wave impulse declines and 3 wave corrective advances. We are nearly there.

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