Home > Uncategorized > Midweek Market 27 Jun 2019

Midweek Market 27 Jun 2019

Jun 27th, 2019

Executive summary

Divergence in US indices continues with the dominant non-conformance being indices in small caps, banks, and transports against the major blue chip indices. This bearish evidence indicates that general equities are preparing for a very strong major trend change, as forecast for the Jul-Dec period this year. The warning signs have been growing in potentially dangerous global economic and political issues, in slowing global economies, global central bank activity, debt issues in China and the EU, Euro-fragility, Brexit, populism, increasing Middle East tensions, etc. The vast majority of investors remain confident that all these problems can and will be solved painlessly, as generally investor optimism remains excessively high.


Increasing global treasuries on negative yield now exceeds US$12trillion as the world fends off recession, with confidence in the first US Fed rate cut in the next cycle increasing to 2 (two) cuts this year. This is as yet still restricting US treasury yields from rising, as they must eventually, in the long term bear market which started in mid-2016.


The 16 month rally in the US dollar has ended, as the process of eroding dollar value resumes into its long term decline. History has shown that the first US Fed rate cut in a new cycle ushers in a new gold bull market, and this is now in process causing the gold price to penetrate long term resistance as it increased $170 in a month.


However, there is major dichotomy in the market with many commentaries now increasingly calling a new gold bull market, whilst Elliott Wave theory calls this still only a bear market rally. And, a gold bear market rally means lower prices to come and also higher US$ values to come. Watch this space!!!

US Dollar

The US dollar has ended its recent advance and could now have resumed its long term decline. This 30 year chart is a reminder of the dollar’s long term decline, illustrating the RSI divergences in 2002 and 2016 which in the first instance resulted in a 5 year duration 40% drop in value after penetrating down through the 200 week moving average. On a fractal comparison basis, the divergence occurred again in 2016 and, after also penetrating down through the 200 week moving average, should also produce a 5 year long 40% drop in dollar value. In fact, even more so in the second instance if one considers the dire situation now compared to earlier in 2002.


This illustration indicates a dollar value at $62 in the year 2024.

The dollar has broken down through the bottom of the rising wedge pattern which indicates a potential decline at least to the Sep 2017 low at $91. The negative divergence in the MACD is a major propellant with short term support between $93.50 and $95.


Both oscillators are still dropping in support of further declines.

The breakout through the rising wedge pattern has also activated the H&S pattern plus penetration of 200-Dema. This should supply additional propellant to eventually reduce dollar value through the short term support band between $95.38 – $94.62.

The short term 3 month chart illustrates the breakdown through the H&S activation and 200-Dema. There is some price retracement from the top of the support band at $95.38 which both oscillators are supporting with turn-ups.

Japanese Yen

The dollar / Yen chart negative bias (dollar weakness / Yen strength) is evident, but with some retracement up to the lower H&S neckline which should provide some resistance. There is little support below this line but the developing reducing wedge should break up o dollar strength eventually.

US Treasuries

The US Treasury market rally continues as yields continue to hold at lower levels. The circle illustrates some loss of momentum and as investor optimism is at extreme levels it suggests the rally is probably close to completion.


US Treasuries are being supported at these low yield levels because of concerns regarding the encroaching recession which is the US Fed prompt to prepare for the first rate cut in the next cycle. This will be further prompted by the anticipated equity sell-off in the Jul-Dec period this year.

Gold

This gold chart extends the full history of price behaviour since Richard Nixon delinked the dollar from gold convertibility in Aug 1971. It includes a fractal analysis comparison between the 1980 peak and the 2011 peak illustrating failure to penetrate the previous high (red circle) and success in penetrating the recent high (blue circle).


The failure (red) ended in gold continuing to decline to lower levels until the final bottom in 1999 (12 years later), whereas the success now (blue) will increase the gold price. This is a bullish divergence which is said to confirm the start of the next gold bull market. Note also the consecutive higher lows (green) to support the process.


The fractals include points 1-5 (red in the early 1980s) and 1-5 (blue since 2011), each ending in the bullish divergence in the circles. An added difference includes the interest rate peak in 1981 and the interest rate bottom in 2016. These together provided the platform in 1981 for general equities to start the greatest bull market in history (negative for gold) and in 2016 to start the greatest bear market in history (positive for gold).
Consider also that, in Elliott Wave theory the massive general equity top pattern we have today is the end of wave 3 up in the Grand Supercycle starting in year 1700. This impulse wave will include 5 waves, and that wave 4 down will decline 90% and last 100 years before it resumes up to wave 5 to complete the cycle.

We have a decisive breakout through the massive pentagon basing pattern in the gold market stretching back 6 years. This is the breakout referred to in blue in the previous chart, supposedly confirming a new gold bull market.

This is all mainly 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.

There is a breakout through long term resistance in the gold market.
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 catapulting higher through long term resistance with momentum illustrated by the 21 consecutive closes above 10-Dema. But the small retracement includes a bearish Evening Star candle at the peak, and the overbought oscillators also suggest a correction next.

South African Rand

The South African Rand strengthened further to close at $14.23 against the weaker dollar. Technically, it has a bullish breakout through the bottom of the rising wedge although it is now confronted by unsupportive oscillators together with 200-Dema and the support zone just below.

HUI / Gold Ratio

US miners are outperforming an increased gold price during this rally as the ratio achieves 21 consecutive closes above 10-Dema. The ratio has also broken above the previous high with no visible resistance in sight. Both oscillators are at the top of their range and the rally is subject to some retracement.

GDX US miners ETF

GDX has a breakout above the 2½ year range-bound region with price in an expanding wedge which implies potential additional gains. ut, conventional wisdom suggests a correction next.

GDX has a strong rally breakout to new highs within an expanding wedge formation. But both oscillators are overbought and there are a number of gaps which usually are closed eventually.


Momentum is strong though with 21 consecutive closes above 10-Dema and well ahead of all MAs.

DUST US Gold Miners Bear Index

The Dust index is the inverse of GDX nearly exactly, with penetration of the triple bottom adding further declines equal to the height of resistance. This is very positive for gold miners.


But the oscillators are at the bottom of their range which should invite a price advance which have the opposite and negative on US gold miners.

Silver

Long term silver advances up to the top of the bull flag, but continues in a chart with a distinctively negative bias. Both oscillators have potential to still advance but silver needs to rally strongly if it is to impact positively on the whole precious metals complex. Otherwise its affect will in fact be strongly negative.

The short term 3 month daily chart illustrates an advance up a bear flag, which is an opposite and negative indication to the 3 year chart. The advance includes 11 consecutive closes above 10-Dema which indicates increasing momentum, both oscillators are now overbought and vulnerable to declines which indicate negatively for silver.

Silver Miners

Silver miners are enjoying a strong advance with 21 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 higher again at 92.55. 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
Divergence in US indices continues with the dominant non-conformance being indices in small caps, banks, and transports against the major blue chip indices. This bearish evidence indicates that general equities are preparing for a very strong major trend change, as forecast for the Jul-Dec period this year.


Our view of US equities, using the Dow Jones as a proxy, illustrates 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.

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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