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Midweek Market 11 April 2019

Apr 11th, 2019

Executive summary

Commentary remains similar to last week, with US equities remaining elevated, characterised by a number of indications pointing to a market top and pending trend change. There are noticeable divergent non-confirmations between major indices and continued euphorically high investor sentiment, with every indication the US rally is in the late stages of maturation supported by overwhelming fundamental evidence of impending collapse.


The global economic slowdown is a reality with recession in some parts and the threat of recession in others. The US yield curve has inverted in very short term treasuries with the formal 10 year to 2 year still threatening, and recession in the US is expected later in 2019. The US bond market has started to normalise again, with prices declining and yields increasing, after the 5 month countertrend correction.


Global markets are sensitive to the US dollar which at the moment has had a down week in its progression through a strengthening phase. This has provided impetus to the gold market which has, correspondingly, had an up week as it progresses through a weakening phase. Markets continue to discount the US Fed’s first rate cut in the next cycle and this will assist the gold price during the remainder of 2019.

US Dollar

The US dollar index is drifting sideways as it continues to strengthen overall within the rising wedge pattern. Price is well ahead of all the MAs and looks set to move higher in the next up cycle.

The barrier triangle pattern is developing strongly to catapult the dollar up to $100.00 or higher, providing E(B) holds and is not penetrated on the downside. As the cycle turns up it will create the 1 – 2 leading to the longer and stronger 3 up leading on to complete the corrective Elliott Wave (A)(B)(C) before the next impulsive 5 wave down.

The dollar moved down this week but remains well above 200-Dema, in preparation for the next up cycle. Both oscillators are dropping and the turn up may be stalled a while.

Japanese Yen

The Yen strengthened down from resistance in accordance with the weaker dollar last week. As the US$ barrier triangle plays out to completion, so too will the Yen continue to weaken well up into the resistance region, together with the implications for a weaker gold price then.


Both oscillators are turning down suggesting the reversal will not be immediate.

US Treasuries

The benchmark US 10 year Treasury yield has bottomed and turned up, reluctantly. Once the yield rise gains momentum, creating the 1-2, so then will the Elliott Wave wave 3 start a longer and stronger rise that will eventually test the Feb 2019 high and potentially even the Oct 2018 high.


This will confirm and resume the earlier collapse in the bond market which has been disrupted by a 5 month countertrend rally.

US Yield Curve

The official US yield curve calculated on the 10 year and 2 year is still drifting sideways at 1.074, 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 2 month and 3 month, etc.

Gold

The next major 6-month cycle low in the gold price is still far from complete. As the US$ index strengthens towards $100.00 and beyond so too will the gold price drop down into its cycle low, probably in the region of $1250 to $1230. The next up cycle may well take gold to the $1500 region later in 2019.

Gold enjoyed an up week which extended the sideways drift, before starting the descent to the 6-month cycle low. Both oscillators are dropping in support of this potential decline.


US miners (GDX, HUI, etc) have enjoyed a 7-month rally which has been positive for the metal, but silver continues to underperform gold which is negative and even negative for the whole complex.

The 12 month chart illustrates the gold price moving towards the triangle apex, at the underside of diagonal resistance, and with the good price move up this week it is now well above the MAs. But with a cycle turn up in the US$, gold is likely to still drop down into the support zone despite oscillators rising.

The short term 3 month chart illustrates the minor breakout through diagonal support, which silver has not managed to do. This is another indication of the negative divergence in the two metals and the likely further drop down into support.

South African Rand

The South African Rand strengthened 6.5% against the dollar in the 2 weeks from $14.76 when Moody’s held the rating unchanged. This of course also included generic weakening in the dollar, and with the oscillators also dropping appropriately, the Rand is now vulnerable to the next weakening cycle and dollar strength.


As the US$ gains disproportionate strength, as forecast, so too will the Rand weaken: Perhaps significantly.

HUI / Gold Ratio

The ratio continued a gradual increase along the incline channel in a 7-month rally of improved US minor performance against gold. The MAs provide support in a chart that displays a positive bias that has in fact impacted positively on the gold price itself. This is now vulnerable to a potential significant reversal.

HUI Index

The HUI index itself is behaving in similar fashion with similar commentary.

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 against gold’s which does not. Silver continues to move down into a reducing wedge pattern which implies a potential breakout to the up. Price is also just below 50-Wema and well below 200-Wema, as against gold which is well above. So, despite any pretentions to a breakout to the upside, silver is likely to break to the downside with a negative impact on the whole precious metals complex.

The 12 month chart illustrates silver dropping further down into a reducing wedge pattern, as price moves toward the triangle apex. Despite an up week with no breakout, price is still below 200-Dema in maintaining the non-conformance with gold and gold miners as they continue above 200-Dema. This is the prelude to further price declines in Silver as well as the whole precious metals complex.

The 3 month chart illustrates silver breaking down to lower levels and below the MAs., and seemingly on the cusp of a breakout. Gold does have a breakout in its 3-month chart against silver which does not, highlighting again the negative divergence between the metals and silver’s ongoing underperformance of gold.

Gold : Silver Ratio

The gold / silver ratio continues rising to close at 86.19. 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 remain elevated, characterised by a number of indications pointing to a market top and pending trend change. There are noticeable divergent non-confirmations between major indices and continued euphorically high investor sentiment, with every indication the US rally is in the late stages of maturation supported by overwhelming fundamental evidence of impending collapse.
But, the market has not topped out yet and, from an Elliott Wave point of view, it will not have until confirmation of waves to the downside are confirmed as 5-wave impulsive and those up as 3-wave corrective: No matter how imminent it may seem.

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