Home > Uncategorized > Midweek Market 23 May 2019

Midweek Market 23 May 2019

May 23rd, 2019

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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