Home > Uncategorized > Midweek Market 6 Jun 2019

Midweek Market 6 Jun 2019

Jun 6th, 2019

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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