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Midweek Market 13 Jun 2019

Jun 13th, 2019

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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