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Midweek Market 23 May 2019

May 23rd, 2019 No comments

Executive summary

Markets are likely to witness increased volatility in the next period of weeks and months which just might become the norm throughout the rest of 2019. Current EU elections and continued Brexit turmoil, plus the deteriorating stance between China and the US will drive initial price volatility. Also the political fervour in the ramp up to the US 2020 presidential election is building to the most hotly contested election in decades.


Markets are increasingly reacting to all this across the spectrum in currencies, stock and bond markets, debt levels and rates, precious metals et al., in attempting to balance capital, risk, and reward.


The US dollar index continues to increase in the short term towards the region of $100.00 which is the prime driver of weaker precious metals and miners. Potential decline in US equities has the major indices reacting in differing ways with differing short term options, as the grind towards the final market collapse edges closer.

US Dollar

The US dollar index continues to advance into the rising wedge and well ahead of the MAs. The chart is positive and looks set to advance higher.

The dollar rally in the barrier triangle pattern is set to clear the Apr high and move towards a level $100.00, provided the red support lines are not violated. Dollar strength is primarily the reaction to market tension and volatility as a perceived safe haven to the threats. From an Elliott Wave point of view the advance will complete the corrective (A)(B)(C) which will complete anywhere between the Apr peak and the region of $100.

The short term 3 month chart illustrates the dollar rising towards the Apr peak after consolidating around 10-Dema. The chart looks positive with all MAs moving up steadily.

It improves perspective to view much longer term charts from time to time. This 40 year weekly chart illustrates the 16 year cycles in dollar value, based on the US presidential election periods every 4 years.


The dollar is in a long term down trend which, if the cycles hold true, is likely to witness dollar value dropping towards the cycle bottom in the low $0.60 late in 2024. This coincides with reciprocal gold strength which will occur at the same moment.

Japanese Yen

The Yen weakened significantly this week in line with the dollar advance as the US$ barrier triangle continues play out to completion. This Yen weakness coincides with recent gold weakness.

US Treasuries

This is a 40 year weekly chart of the benchmark US Treasury 10 year yield, highlighting the bottom formation signalling the end of the 35 year US bond bull market. It includes a powerful inverted dome bottom including a double bottom which is likely to advance yield into the long term bond bear market once the neckline is breached. This will include an initial phase of increasing yield by the depth of the dome towards yield of 6.0%.


There was a false breakout in late 2018, and the current countertrend bond rally (seen in the dangling dogleg since then) needs to complete with a reversal and subsequent breakout through the neckline to confirm everything.

The 5 year weekly chart illustrates the extent of the yield countertrend decline which is all but complete. Both oscillators are in the lower regions of their range and indicate the potential for the needed reversal.

The yet shorter term 1 year chart details the countertrend yield decline and the potential for the upward reversal which seems likely any time soon.

Gold

This is a 50 year chart of the gold : SPX (proxy for the S+P500 index) ratio which illustrates performance of one against the other. The two are opposite in content, value, and investor confidence, in that gold is a hard asset and the S+P500 is an investment based on a fiat-based currency, the dollar. You cannot therefore have peaks / troughs in both at the same time, and a gauge of gold value is improved when the S+P500 is doing badly, and vice versa.


The peaks Red) are the gold peaks in 1980 and 2011 and troughs (blue) are when Nixon de-linked the dollar from gold convertibility in 1971 and the US tech bubble in 2000. The final black circle is now.


The first blue circle in 1971 was the start of the 1st gold bull market and the 2nd blue circle the start of the 2nd gold bull market. The 2 red circles represent the start of the 2 gold bear markets, which follow the end of bull markets.


The black circle will turn blue if the S+P500 collapses and red if gold collapses. The blue moving average is a very long term 200-Wema (equivalent to 800 day moving average) which triggers the bull / bear markets at the cross over. It can be seen in the tail of the graph that gold potential is beginning to develop even before any equity collapse.

This is a 6 year weekly chart of the gold ; 10 Year US bond price ratio which has been constructing a 6 year bottom formation. It will trigger as the ratio breaks through the neckline. The ratio advances as gold rises and the bond value drops, and vice versa. Therefore, as the bond countertrend rally completes, yield will advance and value will drop. Even a casual glance at the chart indicates this is about to occur any time soon.

The gold price 6 month cycle low is in progress which should complete somewhere between $1250-$1210 (red circle). As the US$ index strengthens towards $100.00 and beyond so too will the gold price drop down into its cycle low. The next up cycle may well take gold to the $1500 region later in 2019.

Weekly gold continues decline into the bullish flag pattern which will break up and advance once the dollar completes its barrier cycle advance. The oscillators are still declining with the Slow Stochastice at the bottom of its range.

Daily gold continues its relentless decline into the reducing wedge as a threatening H&S develops. More downside looks likely.

The 3 month chart illustrates gold’s decline this week ending in another break below 200-Dema.

The gold volatility index is flat to continuing down. Investors are not getting excited by events which presupposes more of the same to come.

South African Rand

The South African Rand is moving sideways and looking relatively stable against the dollar, as it develops 2 channels in the chart, one bullish and the other bearish. Price is above the MAs (bearish) and there does not appear to be many other technical reasons for movement either way. Therefore, with the elections completed, movement is likely to be dollar driven and not Rand driven.

HUI / Gold Ratio

US miners continue to grossly underperform weak gold as the ratio completes 25 consecutive closes below 10-Dema. The ratio is oversold but with more gold downside any correction seems unlikely. Both oscillators are bottoming which suggests some kind of a bounce is possible.

GDX US miners ETF

GDX is consolidating (on reduced volume) just above the neckline of a developing H&S pattern, which if triggered is likely to take price much lower. The ETF is at a critical bearish moment with a tipping point close at hand.

DUST US Gold Miners Bear Index

The Dust index is the inverse of GDX nearly exactly. It is also at a critical bullish moment with a tipping point close at hand. If this is triggered it will be very bearish for gold and miners.

Silver

Silver continues to move down into the reducing wedge, breaking down into previous support in a chart with very negative bias.

The 12 month chart illustrates silver dropping further down into the reducing wedge pattern, as silver becomes acutely oversold.

The 3 month chart illustrates the decline accelerating further down into a prolonged reducing wedge. There may be some sort of bounce from here, but unlikely.

Silver Miners

The silver miners carnage continues in a near vertical decline. Like gold miners, this can only be extremely negative for the metals.

Gold : Silver Ratio

The gold / silver ratio continues rising overall within the rising wedge pattern, to close higher at 88.19. This reflects the continued silver underperformance of gold which is negative for the whole precious metals complex, seemingly endlessly.

General Equities

Potential decline in US equities has the major indices reacting in differing ways with differing short term options, as the grind towards the final market collapse edges closer.

The Dow Jones has 2 short term options:

  1. Drop from here by about 20% to a level of 20000 before the end of 2019;
  2. Advance from here to 27000 soon and to drop from there by about 26% to a level of 20000 before the end of 2019;

From there the Dow Jones has 2 mid-term options:
1 To start a major collapse directly from there in early 2020;
2 To first advance from there to 28000 by the end of 2020 and to start a major collapse from there in early 2021;

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Midweek Market 9 May 2019

May 9th, 2019 No comments

Executive summary

Much has been said and written about the impending collapse of markets and in fact even the international monetary system itself. The legacy of debt, deficits, and doom lurks in the background as investor psychology remains vexing because prices keep rising, volatility keeps declining, and extreme sentiment and euphoria remains.

Probably the world’s leading researcher in Elliott Wave theory recently projected equity behaviour based on the Dow Jones Industrial Average, and this commentary explores some of those views in simple terms.


The Dow is estimated to peak in early 2021 in the region of 28250 after various short term gyrations that unfold the wave structures up to that point (indicated in the attached charts). The Grand Supercycle wave structure (started at the beginning of the United States in 1776) will end wave III up at that moment and start the century long wave IV down before eventually completing wave V. So, US equities have approximately another 21 months to grow another 5% before the final market top, beyond which the next financial collapse will envelop the world in something far greater than anything else gone before.

The US dollar index continues to increase in the short term towards the region of $100.00 or above but, once this pattern has completed, the dollar will resume its long term weakening trend.

Precious Metals and miners continue their weakening trend which is not complete, although currently could be in a troublesome rally. This is likely to eventually extend declines before completing the down cycle to coincide with final dollar strength.

US Dollar

The US dollar index continues to increase into the rising wedge although involved in miner retracement at times. The oscillators are rising and price is well ahead of all the MAs and looks set to move higher.

The dollar is in a 2nd consolidation in its rally in the barrier triangle pattern chart, as it also holds above the red support lines. It is likely to continue rising and technically will have completed the pattern once it rises above the April peak just above $98.00. But the rally could be in a more complex wave 3 of (C) which is still likely to catapult the dollar index up to $100.00 or higher, providing the red support lines continue holding. This will complete the corrective (A)(B)(C) before the next impulsive 5 wave down.

The short term 3 month chart illustrates the dollar building a base consolidation for the next advance up above the previous high.

Japanese Yen

The Yen strengthened during the dollar pause to breakout of the expanding wedge formation, but will resume a weakening phase as the US$ barrier triangle plays out to completion. This Yen strength coincides the recent pause in gold’s weakening phase.

US Treasuries

The benchmark US 10 year Treasury yield bottomed at the start of April before launching into an increasing yield phase, which is enduring increased resistance. This is caused principally by the threat of US recession and the onset of more modern monetary theory applied in potential QE later in 2019.

This can be seen in the next chart illustrating the US yield curve.

US Yield Curve

The official yield curve calculated on the 10 year and 2 year has been drifting up but jolted down these last 2 weeks as US recession and trade wars re-surfaced. There is little doubt that global recession is coming (and already here in parts) and that US recession is potentially due later in 2019 or 2020.

Gold

The gold price 6 month cycle low is in progress which should complete somewhere between $1250-$1210 (red circle). As the US$ index strengthens towards $100.00 and beyond so too will the gold price drop down into its cycle low. The next up cycle may well take gold to the $1500 region later in 2019.

Gold continued to decline into the cycle low but is consolidating just above 50-Wema (equivalent of 200 day moving average). The oscillators are mixed and further declines may be delayed slightly.

Despite the delay in the consolidation below the H&S neckline, the gold price is likely to still drop down into the support zone.

The 3 month chart illustrates gold’s consolidation at 200-Dema as the price continues its relentless decline towards lower levels.

South African Rand

The South African Rand strengthened slightly this week to close at 10-Dema. Despite this, the oscillators are mixed which indicates some further dithering ahead, and with more dollar strength in the next period further Rand weakness seems likely again.

HUI / Gold Ratio

The recent multiple breakdowns are turning into lower consolidations as US miners decline ahead of the gold price. Both oscillators are bottoming which might produce a bounce in the ratio. However, it is well below the MAs and looks set to still continue down.

US Miners Matrix

The matrix chart of the HUI Index, GDX ETF, and the Dust Bear Index, still portrays a negative picture with penetrations through the necklines and emergence of a 2nd new neckline. The top two have penetrated 200-Dema and Dust is about to penetrate also. This is not a positive picture and further declines in US miners are expected, which additionally impact negatively on metal prices.

Silver

Silver continues to move down into the reducing wedge, breaking down towards the support zone in a chart with very negative bias. However, the Slow Stochastic is turning up close to the bottom of its range, the MACD is virtually still at its mid-point with much downside still available. Silver could bounce from here.

The 12 month chart illustrates silver dropping further down into the reducing wedge pattern, as price moves toward the triangle apex. There could be a bounce from here but it will be short-lived.

The 3 month chart illustrates the decline range as well as the consolidation around 10-Dema. This may of course already be the bounce completed.

Silver Miners

Silver miners, like US gold miners, have broken lower into 2 consecutive consolidations. This is a very negative picture with likely further declines.

Gold : Silver Ratio

The gold / silver ratio continues rising overall within the rising wedge pattern, to close slightly lower at 86.22. 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

An in-depth analysis by probably the world’s leading researcher in Elliott Wave theory recently projected equity behaviour based on the Dow Jones Industrial Average on the New York Stock Exchange. In simple terms the Dow is estimated to peak in early 2021 in the region of 28250 after various short term gyrations that unfold the wave structures up to that point.

This will be the top of the market, worldwide, and will usher in the coming collapse. The Grand Supercycle wave structure (started at the beginning of the United States in 1776) will end wave III up at that moment and start the century long wave IV down before eventually completing wave V. So, US equities have approximately another 21 months to grow another 5% before the final market top, beyond which the next financial collapse will envelop the world in something far greater than anything else gone before.

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Midweek Market 2 May 2019

May 2nd, 2019 No comments

Executive summary

How overvalued and dangerous is the US market? To answer that question you could look at one or two pertinent ratios.


The age old Warren Buffet measure of total US market cap to GDP ratio is currently at 145% which is a full 30% higher than it was before the start of the Global Financial Crisis in 2007. Another metric is the Household Net Worth to GDP Ratio which is calculated by dividing current total value of US home prices + equities by the underlying economy. This is now at an incredible 535% of GDP, all artificially inflated by interest rates that have been pushed down toward zero. This is also a record and 19% higher than at the Nasdaq bubble of 2000, compared against the historical average of 384%.


But the markets remain elevated, seemingly forever.


Equity markets continue to edge up towards the top with the Dow Jones now at a triple top and indicating classic symptoms of exhaustion and trend change, along with continued extreme optimism and euphoria. Also, US Treasuries have perhaps not normalised yet in resuming their long term bear market in that yields are not increasing with any noticeable momentum.

Meanwhile, the US Federal Reserve has just completed its FOMC meeting and remain in the midst of their ‘pause’ on interest rates, while they continue to rethink the perilous strategy of triggering lower interest rates to raise inflation and economic growth (which is failing everywhere else). This, in the glare of President Donald Trump’s ongoing pressure to cut rates and pile on the QE, while he points to China’s approach to stimulating its economy.


All the above certainly provides food for thought, and is causing some to now believe that this situation is going to continue for longer than originally thought. Markets may well continue longer before finally topping out.

The US dollar continues to increase overall although this week retracing some of the earlier advance. The index still looks set to increase up towards $100.00 or above but, once complete the dollar will resume its long term weakening trend.


Precious Metals and miners continue their weakening trend which is not complete. This is likely to extend declines before completing the down cycle in due course.

US Dollar

The US dollar index continues to increase into the rising wedge although retracing some of the earlier advance. The oscillators are rising and price is well ahead of all the MAs and looks set to move higher.

The dollar barrier triangle pattern has broken back below the BD horizontal to end in a bullish Hammer-type candle, indicating the next moves to be up. This could result in a more complex wave 3 of (C) which is still likely to catapult the dollar index up to $100.00 or higher, providing the red support line at 2 holds. This will complete the corrective (A)(B)(C) before the next impulsive 5 wave down.

The short term 3 month chart illustrates the partial retracement down to the bullish Hammer-type candle which is more likely to increase dollar value in the next period.

Japanese Yen

The Yen continues to weaken against the dollar in the expanding wedge formation, despite strengthening in the last 10 trading days. The Yen will continue to weaken as the US$ barrier triangle plays out to completion.

US Treasuries

The benchmark US 10 year Treasury yield bottomed at the start of April before launching into the usually longer and stronger Elliott Wave 3, which is at present enduring increased retracement pressure down as wave 3 struggles to gain momentum. This is caused principally by the threat of US recession and the onset of more modern monetary theory applied in potential QE later in 2019.


This can be seen in the next chart illustrating the US yield curve.

US Yield Curve

The official yield curve calculated on the 10 year and 2 year has been drifting up but jolted down this week as the threat of US recession re-surfaced. There is little doubt that global recession is coming (and already here in parts) and that US recession is potentially due later in 2019 or 2020.

Gold

The gold price 6 month cycle low is in progress which should complete somewhere between $1250-$1210 (red circle). As the US$ index strengthens towards $100.00 and beyond so too will the gold price drop down into its cycle low. The next up cycle may well take gold to the $1500 region later in 2019.

Gold continued to decline this week into the cycle low. Both oscillators are dropping in support of this with the MACD some way to go yet.

The bearish dome top formation and neckline, incorporating a H&S as well, has pushed the gold price below the neckline. Gold has consolidated below the neckline, having increased back to test, where it is likely to still drop down below 200-Dema into the support zone.

The 3 month chart illustrates gold’s increase back to test the neckline before ending on an indecisive red candle. Price needs to drop below 200-Dema if it is to drop down into the support zone. There is potential for partial price retracement in the short term back up to diagonal resistance.

South African Rand

The South African Rand weakened against the dollar up into earlier resistance before strengthening marginally. Despite this, the oscillators are mixed which indicates some dithering ahead. But with more dollar strength in the next period further Rand weakness seems likely.

HUI / Gold Ratio

The ratio dropped 12% in the last 25 trading days, with multiple breakdowns in the last 10 trading days. So US miners have underperformed weak gold significantly. It is well below the MAs and looks set to continue down, except the oscillators are also well down which could precede a bounce in the ratio.

US Miners

The chart includes the HUI Index, GDX ETF, and the Dust Bear Index, each with dome formations and necklines. The support lines are all penetrated with price back to test followed by further penetration. The top two have penetrated 200-Dema and Dust is about to penetrate also. This is not a positive picture and further declines in US miners are expected, which additionally impact negatively on metal prices.

Silver

Silver continues to move down into the reducing wedge, breaking down into the earlier support zone. This continues to display as a very negative bias chart. Although the Slow Stochastic is close to the bottom of its range, the MACD is virtually still at its mid-point with much downside still available.

The 12 month chart illustrates silver dropping further down into the reducing wedge pattern, as price moves toward the triangle apex. Price is below the MAs and multiple breakdowns have occurred as the earlier support zone is penetrated.

The 3 month chart illustrates the decline range as well as the multiple breakdowns in momentum that remains decidedly down.

Silver Miners

Silver miners, like US gold miners, are poised to break lower.

Gold : Silver Ratio

The gold / silver ratio continues rising overall within the rising wedge pattern, to close yet higher at 87.19. 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

Equity markets continue to edge up towards the top with the Dow Jones now at a triple top and indicating classic symptoms of exhaustion and trend change, along with continued extreme optimism and euphoria.

Meanwhile, the US Federal Reserve has just completed its FOMC meeting and remain in the midst of their ‘pause’ on interest rates, while they continue to rethink the perilous strategy of triggering lower interest rates to raise inflation and economic growth (which is failing everywhere else). This, in the glare of President Donald Trump’s ongoing pressure to cut rates and pile on the QE, while he points to China’s approach to stimulating its economy.
All the above certainly provides food for thought, and is causing some to now believe that this situation is going to continue for longer than originally thought. Markets may well continue longer before finally topping out.
So, if it is simply a matter of preparing for the collapse and waiting, the wait might take longer and may even extend through towards 2021.

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