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Midweek Market 20 Jun 2019

Jun 20th, 2019 No comments

Executive summary

Market confidence in a US Fed rate cut has grown to an anticipated 2 cuts this year, as the short term US Treasury yields continue to decline below the Fed Funds rate which is the trigger for Fed action. This will be the first cut in the new cycle, probably as the anticipated equity selloff in the 2nd half of 2019 gathers momentum.


This has prompted the US equity market, into a rally this month which is likely to take the Dow to yet another new high (±27 000). The market is likely to be much weaker during Jul-Dec 2019 with a severe downturn into the end of the year, followed by a strong recovery through 2020 to the potential final market top close to Dec 2020.


The 16 month rally in the US dollar is now probably complete as the impact of US Fed rate cuts later in 2019 start the process of eroding dollar value. The US$ is in a long term decline and this process is now likely to start gathering momentum.


History has shown that the first US Fed rate cut in the new cycle ushers in a new gold bull market, and market confidence that this is now in process caused a major shift in the gold price this week. The gold price is finally testing long term resistance at the neckline in the massive basing pattern in the gold market stretching back 6 years.

US Dollar

The US dollar has seemingly ended its recent advance and could now have resumed its long term decline. The 40 year chart is a reminder of the dollar’s long term decline, illustrating the 8 year cycles coinciding with US presidential elections in peaks and troughs every 16 years. This is likely to include a trough next in late 2024 with the dollar index declining into the low $60s, as is clearly evident in the chart structure.

The 16 month rally in the dollar is all but complete as it now begins to penetrate the bottom of the rising wedge pattern. The negative divergence in the MACD is finally beginning to draw dollar value down as both oscillators continue declining.


Market confidence in a US Fed rate cut has grown to an anticipated 2 cuts this year, as the short term US Treasury yields continue to decline below the Fed Funds rate which is the trigger for Fed action. This will be the first cut in the new cycle, probably as the anticipated equity selloff in the 2nd half of 2019 gathers momentum. It is this anticipation which is providing energy to a lower dollar, which is now long overdue.

Technically, the dollar is starting to decline because of the bearish rising wedge patterns and the impact of negative divergence with the MACD. A threatening H&S pattern is developing which further declines will activate.

The short term 3 month chart illustrates the threatening H&S pattern in more detail, which a break below $96.33 will activate. 200-Dema (green) is just below that level and penetration will add energy and momentum to further declines.

Japanese Yen

The dollar / Yen chart is developing negative bias (dollar weakness / Yen strength), with an incline H&S (already penetrated) and another level H&S which is about to be activated.

US Treasuries

The US Treasury market is still in a rally with continued extreme investor optimism, as yield continues to break down to lower levels. Reduced bond yields, especially the short term 3 and 6 month T-bills, are providing trigger mechanisms for the US Fed to prepare for the first rate cut in the next cycle.

The market is now anticipating at least 2 such cuts this year which are probably likely as the anticipated equity sell-off in the Jul-Dec 2019 period gathers momentum.

Gold

The massive pentagon basing pattern in the gold market stretches back 6 years, with the inviting neckline at $1365 – $1375 already tested numerously. This gold rally, although closing at $1348.80, has actually penetrated the neckline because gold advanced during the night and is at $1381 as these words are written.

This is all powered by the increasing likelihood of a US Fed rate cut which has caused an appropriate dollar decline. History shows that the start of the next gold bull market will be triggered by the first US rate cut in the next cycle, and it is now virtually a given that this is likely soon.

This is a weekly chart, and what is required now is confirmation of the penetration.

Gold is now testing long term resistance after a breakout from the long term bull flag. As mentioned, gold is now at $1381 but needs to confirm penetration on a weekly basis.

Silver is still non-conforming with a persistently high gold/silver ratio which is a double-edged sword. Either silver enjoys a breakout rally or gold and gold miners reverse to lower prices.

The short term 3 month chart illustrates gold beginning to catapult higher after 3 breakouts. In fact, as of writing, gold is another $33 higher at $1381. The last 10 trading days have provided 10 consecutive closes above 10-Dema which is an indication of increased momentum.

The one negative is still both oscillators at the top of their range, suggesting lower prices next.

South African Rand

The South African Rand strengthened nearly 5% in the last 9 trading days against the weaker dollar. Technically, it has a bullish breakout through the bottom of the rising wedge and it has invalidated the earlier bearish H&S activation. Declining oscillators indicate further strength to come, as the divergence with the MACD plays out correctly.

The short term R186 government bond yield has been steadily declining since Oct 2018 which suggests the Reserve Bank is likely to cut the Repo rate soon. This will have a weakening effect on Rand value.

HUI / Gold Ratio

US miners are outperforming an increased gold price during this rally as the ratio achieves 15 consecutive closes above 10-Dema. The ratio still needs to breakout above the previous high and penetrate resistance decisively. Both oscillators are at the top of their range and the rally is subject to some retracement.

GDX US miners ETF

GDX, likewise, has had a strong rally with breakouts above previous highs as well as 15 consecutive closes above 10-Dema. The oscillators are both at the top of their range and GDX is subject to a retracement of sorts. The advance includes 2 gaps which are still un-filled, and as always, may well be closed later on.

DUST US Gold Miners Bear Index

The Dust index is the inverse of GDX nearly exactly, with penetration of the triple bottom which promises further decline. The triple bottom breakout is very positive for gold miners.
But the oscillators are at the bottom of their range which should invite a price advance which is negative for US gold miners.

Silver

Long term silver breaks out of the reducing wedge but continues to languish below resistance in a chart which continues to look very negative. Either silver breaks up and starts to rally or the whole precious metals complex is likely to continue towards weakness.
Both oscillators are beginning to turn up, promising perhaps some excitement in silver.

The 3 month daily chart illustrates a lacklustre consolidation after the breakout. But silver achieves 7 consecutive closes above 10-Dema which is an indication of building energy for increased momentum. Both oscillators still have some space to rise further.

Silver Miners

Silver miners are enjoying a strong advance with 15 consecutive closes above 10-Dema, indicating more energy than silver itself. Maybe silver miners energise silver into a meaningful rally. But the oscillators are at the top of their range and this could affect negatively.

Gold : Silver Ratio

The gold / silver ratio continues its relentless rise, closing slightly lower this time at 90.17. This continues to reflect the silver underperformance of gold which is negative for the whole precious metals complex, seemingly endlessly.

Either silver generates a meaningful rally soon or gold and gold miners drop prices.

General Equities
Our view of US equities, using the Dow Jones as a proxy, illustrated last week the continued enormous topping pattern end play towards a final market top in the next year or two. We will use this template as a guide against which to measure ongoing performance which at the moment is exactly correct.

US equities of course are a proxy for world markets and as they perform so too will world markets (on average) follow.

The market (Dow Jones) is at the moment moving up towards D during this month (Jun 2019) and is likely to traverse the complete ABCDE pattern before then strengthening from (4) to finally reach market top at (5) probably at the end of the year 2020.

A more detailed view of this is illustrated below.

  1. Dow rises to D this month (June) at a new high ±27000;
  2. Declines to E (4) by Dec 2019 ±20000;
  3. Advances to (5) by Dec 2020 ±28000;
  4. This is the final market top;
  5. Start of major collapse in early 2021;
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Midweek Market 13 Jun 2019

Jun 13th, 2019 No comments

Executive summary

US equities, using the Dow Jones as a proxy, continue the enormous topping pattern end play towards a final market top in the next year or two. US equities of course are a proxy for world markets and as they perform so too will world markets (on average) follow.

The market is likely to be stronger this month with a severe downturn into year end followed by a final recovery through 2020 to the final market top.
The 16 month rally in the US dollar is all but complete as it continues to advance into the rising wedge formation with increasing signs of exhaustion and a potential change of trend soon.

Market confidence in a US Fed rate cut by Sep 2019 is growing and this will be the first cut in the new cycle, probably in the midst of the anticipated equity selloff in the 2nd half of 2019. Obviously, a rate cut will add credence to a lower dollar which is now long overdue.

The massive basing pattern in the gold market stretches back 6 years, with the inviting neckline at $1365 – $1375 already tested numerously. This gold rally is also rising to test the neckline which may or may not succeed. But there is a difference this time in that the start of the next gold bull market will be triggered by the first US rate cut in the next cycle, and it is now virtually a given that this is likely soon, probably in Sep 2019: Especially if equity markets are in a selloff which is forecast for the 2nd half of 2019.

US Dollar

The 16 month rally in the dollar is all but complete as it continues to advance into the rising wedge formation with increasing signs of exhaustion. There is noticeable negative divergence with the MACD which will draw the dollar down at some point. Both oscillators are declining in support of a change of trend soon.

Market confidence in a US Fed rate cut by Sep 2019 is growing and this will be the first cut in the new cycle, probably in the midst of the anticipated equity selloff in the 2nd half of 2019. Obviously, a rate cut will add credence to a lower dollar which is now long overdue.

The dollar has weakened significantly since the May high which disrupted the barrier triangle rally in creating a new lower low. This has cast serious doubt in the outcome of the pattern, with the likelihood now that the rally has completed the (A)(B)(C) at $98.33 and that lower dollar values lie ahead.

The red support line at 4 has been breached, with a bounce off the red support line at 2. Final dollar direction will be confirmed with penetration of the blue diagonal support (weakness) or the blue horizontal resistance (strength).

The short term 3 month chart illustrates another week of dollar weakness which should invite some corrective strength in the short term. Both oscillators are turning up at the bottom of their range in support of this.

Japanese Yen

The dollar / Yen chart is developing a negative bias (dollar weakness / Yen strength) and the same can be said of the Euro/dollar (not shown). The dollar/Yen has triggered a H&S which should realise more dollar weakness, but at the same time is declining into a reducing wedge which should eventually break up to dollar strength.

Both oscillators are moving to the lower regions of their range which suggest an upward reversal and dollar strength at some stage’

US Treasuries

The US Treasury market is still in a rally with continued extreme investor optimism, although the 10 year yield is bouncing off bottom and may now be close to bottom. Both oscillators are at the bottom of their range suggesting rising yields next, but yield bottom still needs to be confirmed.

Gold

The massive pentagon basing pattern in the gold market stretches back 6 years, with the inviting neckline at $1365 – $1375 already tested numerously. This gold rally is also rising to test the neckline which may or may not succeed. But there is a difference this time in that the start of the next gold bull market will be triggered by the first US rate cut in the next cycle, and it is now virtually a given that this is likely soon, probably in Sep 2019: Especially if equity markets are in a selloff which is forecast for the 2nd half of 2019.

Gold has a breakout from the long term bull flag which has powered price up to start testing long term resistance. The oscillators are still rising, promising more to come.

Silver is still non-conforming with a persistently high gold/silver ratio which is a double-edged sword. A high ratio traditionally indicates lower prices, or will silver finally advance strongly and take the whole complex higher.

The short term 3 month chart illustrates the consolidation above the recent breakouts, in a setup inviting further price increases. The one negative is the oscillators at the top of their range, suggesting lower prices next.

The Gold COTS data is available only every Friday and therefore this chart is nearly a week old. But the data indicates Large Speculators trending up (green) and Commercials trending down (red) which are both gold bearish. Therefore, based on this, gold should decline from here.

South African Rand

The South African Rand chart indicates further weakness against the dollar. Dollar / Rand is trending up into a broad reducing wedge plus a H&S has activated, both of which indicate dollar strength and Rand weakness next.
However, both oscillators are turning down and there is negative divergence with the MACD, both of which suggest dollar weakness and Rand strength.

HUI / Gold Ratio

The ratio is consolidating after recent advances as US miners continue to outperform the strong gold price. Both oscillators are topping which suggests some kind of retracement next.

GDX US miners ETF

GDX, likewise, has a strong breakout into earlier resistance and is consolidating after the increases. However, the advance includes 2 gaps which, as always, will be closed later on, and the oscillators also are topping out which suggest some kind of retracement next.

DUST US Gold Miners Bear Index

The Dust index is the inverse of GDX nearly exactly, and there is also a consolidation at the triple bottom after the strong decline. A breakout through the triple bottom will be very positive for gold miners.

But, the oscillators are turning up and the 2 gaps remain un-filled, both of which suggest a price rise which is negative for US gold miners.

Silver

Long term silver breaks out of the reducing wedge but continues to languish between support and resistance in a chart which continues to look very negative. Either silver breaks up and starts to rally or the whole precious metals complex is likely to continue towards weakness.

Both oscillators are beginning to turn up, promising perhaps some excitement in silver.

The 3 month daily chart illustrates the breakout of the reducing wedge but with continued weakness back down to top diagonal trend line. Lacklustre silver is likely to get no support from the oscillators turning down.

Silver Miners

Silver miners are consolidating between support and resistance after the breakout. There is no drive to higher prices with oscillators at the top of their range and an un-filled gap still to be filled lower down.

The Silver Cots data, like gold, is available only every Friday and therefore this chart is nearly a week old. But the data, unlike gold, indicates potential price increases. Large Speculators trending down (green) and Commercials trending up (red) which are both silver bullish, even if only mildly so.

Gold : Silver Ratio

The gold / silver ratio continues its relentless rise, closing slightly higher at 90.61. This continues to reflect the silver underperformance of gold which is negative for the whole precious metals complex, seemingly endlessly.
But, it is a double-edged sword, and the ratio will correct down at some point although not any time soon. The oscillators are elevated and could therefore start declining soon.

General Equities
The Elliott Wave view of US equities, using the Dow Jones as a proxy, illustrated last week the continued enormous topping pattern end play towards a final market top in the next year or two. We will use this template as a guide against which to measure ongoing performance which at the moment is exactly correct.

US equities of course are a proxy for world markets and as they perform so too will world markets (on average) follow.

The market is at the moment moving up towards D during this month (Jun 2019) and is likely to traverse the complete ABCDE pattern before then strengthening from (4) to finally reach market top at (5) probably at the end of the year 2020.

A more detailed view of this is illustrated below.

  1. Dow rises to D this month Jun/Jul at a new high 27000;
  2. Declines to E (4) by Dec 2019 approx. 20000;
  3. Advances to (5) by Dec 2020 approx. 28000;
  4. This is the final market top;
  5. Start of major collapse in early 2021;
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Midweek Market 6 Jun 2019

Jun 6th, 2019 No comments

Executive summary

Last week, trade wars went into high gear as surprising news followed more surprising news. First, President Trump insisted that Mexico stop illegal immigration into the US as he told the world about his plan to keep increasing tariffs on Mexico. Then with no hint of relief he insisted that China stop intellectual theft and other malpractices according to international rules and laws. Finally, the US Fed discussed potential interest rate cuts with investors aggressively increasing bets on the effect of such monetary easing. This caused severe drops in the US stock market and a big rise in the Gold price with US treasury yields spiking down further.

Expect the unexpected in the next 6 months. We are getting closer to the next major significant monetary event which will take the world to the edge of the abyss, when gold will swamp the monetary base.

US equities continue in the end play towards a final market top in the next year or two as the enormous topping pattern plays out. Using the Dow Jones as a proxy for US equities the markets are likely to be stronger this month with a severe downturn into year end followed by a final recovery through 2020 to the final market top.


The US dollar index continues to increase into the barrier pattern which may take value close to $100.00, although with a notable decline currently which has prompted the even more notable gold rally up towards long term resistance. While this balance may persist a while longer, it does appear the rally in gold, silver and mining stocks is temporary and that weakness will return until the dollar barrier pattern plays out.

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 until the dollar finally breaks down through the pattern to ultimate weakness.

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 dollar weakness this week down through both 10- and 50-Dema, although ending on a bullish Hammer candle. Both oscillators appear to be turning in the bottom regions..

Japanese Yen

The Yen strengthened this week in line with current dollar weakness, in a chart that looks amazingly Yen positive for a currency that is most printed and in an economy that has been virtually stagnant since 1990. This Yen strength coincides with recent gold strength, both of which are likely to weaken as the dollar barrier pattern plays out, followed later by dollar weakness.

US Treasuries

The US Treasury 10 year yield may now be close to a bottom especially after the frenetic declines this week, with both oscillators at the bottom of their range. The rally in the US bond market is countertrend and cannot go on forever with potential for the upward reversal now beginning to develop.

US Yield Curve

This week saw a wild bounce in the US treasury yield curve as shorter term treasury yields plummeted faster than longer term yields. This is all pushing the US Fed toward a potential rate cut later this year which is one of the powerful financial market triggers.

Gold

Gold has a breakout from the long term bull flag which has powered price up toward long term resistance. The bearish closing candle with a long shadow above is similar to all the previous peak candles which indicates this is also a potential peak. But the advance has been strong and is likely to maintain price levels a while longer, especially with the oscillators still rising.


Silver is still non-conforming with a persistently high gold/silver ratio which is a double-edged sword. A high ratio traditionally indicates lower prices, or will silver advance strongly and take the whole complex higher.

Daily gold 12 month chart illustrates the bullish breakout and the bearish closing candle forming a double top.

South African Rand

The South African Rand finally has a breakout to weakness as it also activates an inverted H&S that has been developing these last 8 months. More weakness is likely, especially if the US dollar continues to play out into its strengthening barrier pattern.

HUI / Gold Ratio

There is a strong breakout back up into earlier resistance, with US miners outperforming gold this week. Both oscillators are topping which suggests some kind of retracement next.

GDX US miners ETF

GDX, likewise, has a strong breakout into earlier resistance. However, the advance includes 2 gaps which, as always, will be closed later on. The oscillators also are topping out which suggest some kind of retracement next.

GDX weekly data illustrates the strong breakout back into the earlier range-bound region. This indicates that current price is actually quite normal and with rising oscillators there is potential for higher prices.

DUST US Gold Miners Bear Index

The Dust index is the inverse of GDX nearly exactly. There is also a strong breakout through earlier support to create a triple bottom, and if that is breached it will be very positive for gold miners.

Silver

Long term silver breaks out of the reducing wedge but price still languishes between support and resistance in a chart which continues to look very negative. Either silver breaks up and starts to rally or the whole precious metals complex is likely to continue towards weakness.

The 3 month daily chart illustrates the breakout of the reducing wedge but with two negative ending candles. The oscillators are also topping and do not suggest anything exciting.

Silver Miners

The silver miners have broken out of the bull flag to end the carnage. But there needs to be follow through and the advance includes a gap which will need to be closed. Prices need to advance much further to produce any kind of potential for silver itself.

Gold : Silver Ratio

The gold / silver ratio continues rising overall within the rising wedge pattern, to close higher still a 90.16. This reflects the continued silver underperformance of gold which is negative for the whole precious metals complex, seemingly endlessly.

General Equities
US equities continue in the end play towards a final market top in the next year or two as the enormous topping pattern plays out. An Elliott Wave view of the Dow Jones Industrial Average sees the index topping finally at the end of 2020 after some ups and downs up to that point. This is illustrated below.


There may well be a number of variations to this basic view.

The market is likely to traverse the ABCDE pattern to then strengthen from (4) to finally reach market top at (5). This will include arriving at D (approx. Jun/Jul) at a new high, after which the rest of 2019 will endure a severe drop to E (approx. Dec 2019), after which the final rally will take the Dow to yet another new high at (5) which will be the final market top during Dec 2020.

A more detailed view of this is illustrated below.

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