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Midweek Market 18 Jul 2019

Jul 18th, 2019 No comments

Executive summary

Much depends on what the US Fed decides on 31 July when they are expected to cut the rate for the first time in this new rate cut cycle. This is awaited eagerly by all, as it is gold friendly and should also be equity friendly. But will it be?

In the meantime US general equities are behaving as forecast, having peaked Monday this week with all the bearish symptoms of exhaustion in contracting volumes, divergences between major and minor indices, and investor sentiments at historic highs. This is all in accordance with the continued development of a major global topping pattern that is likely to decline (20%) this year and to eke out a recovery peak towards the end of 2020 to coincide with US presidential elections at that time. Bond markets continue in a countertrend rally, characterised by the continued increase in negative yield Treasuries that now total US$13trillion, as global central banks fend off inevitable recession.

The US Dollar has regained some lost ground but is forecast to decline further in response to the rate cut, while gold technicals and fundamentals are finally in place to sustain a broad advance. Silver is finally in a rally and has started to outperform gold, while miners have ignited and are now outperforming the metals.

US Dollar

The US$ is in long term decline (black lines) although in a rally since 2008 (blue lines). The dollar index may well reach 100 in due course as the financial market chaos escalates, but is likely to decline towards the low 60s in the next 5 years (as forecast by other long term models).

The dollar is still testing the rising wedge breakout in the 3 year weekly chart. But is still forecast to decline further in line with the negative divergence displayed in the MACD.

The short term 3 month daily chart illustrates recent strength while the expanding triangle pattern indicates further weakness towards the support region.

Japanese Yen

The dollar / Yen currency pair has a breakout from the small bear flag and is hovering above support which leads down to a stronger Yen. This is supported by the oscillators with the chart maintaining its negative bias, with little support below the support zone. Any dollar weakness now will convert to Yen strength.

US Treasuries

US Treasuries continue to rally as the yield on the US10 year continues to decline. This is supported by the increased global number and value of bonds yielding negatively. This trend is driven by global central banks (mainly in the EU) desperately trying to ignite a borrowing/spending frenzy to offset an incipient recession, creating a lot of borrowing and spending which solves the immediate slow-growth problem.

Only after the chaos is recognised as ‘crazy’ will confidence return to fear, and only then will the countertrend bond rally start to normalise into a collapse, in line with interest rates bottoming in mid-2016.

Gold

The long term gold chart illustrates the consolidation above penetration of long term resistance which now looks set to break upwards. All looks constructive with oscillators holding up.

Pennants elsewhere in the precious metals complex of charts have broken up successfully, and the 12 month daily chart looks likely to break up likewise. An upside break will promote the next leg up as the gold price builds on the successful breakout through the 6 year resistance line.

The short term 3 month chart highlights more detail of the constructive consolidation which is likely to break to the upside. The oscillators are in positive support with key resistance at $1443. A break below key support at $1385 will induce a pullback to test lower support levels.

South African Rand

The South African Rand continues to strengthen against the dollar as it drops further down the falling wedge pattern, below all the MAs to close at $13.99. This will have the effect of an eventual breakout to Rand weakness which is supported by both oscillators turning up after declining to the bottom of their range.

HUI / Gold Ratio

US miners continue to outperform an increased gold price with a breakout in the HUI / Gold ratio, to a new high. Miners are forecast to continue outperforming metals with both oscillators holding at the top of their range.

GDX US miners ETF

The GDX breakout from the small consolidation above the 2½ year range-bound region has produced a new high, as the next leg up starts to unfold. It is also supported by both oscillators.

The daily 12 month chart illustrates the consolidation in more detail, as well as penetration of the key level at 26.25, to a new high. The chart structure is in an expanding triangle formation which could now still thrust higher.
Pic GDX 8y

The long term 8 year weekly chart illustrates the breakout potential in the near term resistance band between 27.50 and 32.00, and the target band between 37 and 46. All depends on the strength of the metals breakouts.

Dust US Miners Bear Index

The US Miners Bear index breakout has lead to the next leg down, promoting continued strength for US miners. The chart structure is the near opposite of the GDX in an expanding triangle format with still more room to move.

Silver

Long term silver continues constructing a bullish W bottom as the silver price increases dramatically. Despite the bull flag breakout the chart remains in negative bias. But, silver is gaining energy and could still provide a meaningful rally that activates the W bottom formation. Both oscillators are in support of this.

The daily 12 month chart illustrates more detail of the multiple breakouts which provide traction for the next leg up.

The short term 3 month daily chart illustrates even more detail of the breakout as evidence to support the next leg up.

Silver Miners

Silver miners have a breakout from the pennant through a breakout of the previous peak. This could potentially push up through resistance which would ignite silver itself. The bullish W bottom formation is now activated to add energy to the advance which traditionally ignites silver itself, and both oscillators are in support of this.

USLV US Silver Miners Bull Index

US Silver miners bull index (Uslv) advance through multiple breakouts provides a powerful trigger for silver. The index is looking very constructive with support from both oscillators.

Gold : Silver Ratio

The gold / silver ratio declined 4% this week and the relentless rise in the ratio has been arrested. We now have what could be a real top pattern taking shape, with potentially further declines ahead. This now reflects silver’s outperformance of gold – and long may it last. It is positive for the whole precious metals complex.

General Equities

US general equities are behaving as forecast, having peaked Monday this week with all the bearish symptoms of exhaustion in contracting volumes, divergences between major and minor indices, and investor sentiments at historic highs. This is all in accordance with the continued development of a major global topping pattern that is likely to decline (20%) this year and to eke out a recovery peak towards the end of 2020 to coincide with US presidential elections at that time.

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 Ind Ave) has now probably completed a new high at D. It is forecast to traverse the complete ABCDE pattern to complete a decline phase at E(4) by the end of 2019 at an index value of approximately 20 000. Thereafter, the Dow will enjoy an increase through 2020 to yet another new high at approximately 28 000 at (5) which is likely to be the final market top before a serious decline starts in early 2021.
A more detailed view of this is illustrated below.

  1. Dow has completed its rise to D (July) at a new high of approximately 27 300;
  2. Declines to E (4) by Dec 2019 at approximately 20000;
  3. Advances to (5) by Dec 2020 at approximately 28000;
  4. This is the final market top;
  5. Start of major collapse in early 2021;
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Midweek Market 11 Jul 2019

Jul 11th, 2019 No comments

Executive summary

US June payroll announcement last Friday impacted positively on the dollar and US equities and negatively on gold. This has now worked through the system and US Fed minutes from the June meeting issued yesterday indicated increased certainty for a rate cut in July. This was more gold friendly with the dollar retracing since then and gold moving higher towards $1420 today.


General equities are behaving as forecast, moving towards a peak before a serious decline (20% – 22%) through the remainder of 2019. This is all in accordance with the continued development of a major global topping pattern that is likely to peak towards the end of 2020 to coincide with US presidential elections at that time. Bond markets continue in a countertrend rally, characterised by the continued increase in negative yield Treasuries that now total US$13trillion, as global central banks fend off inevitable recession.


Gold technicals and fundamentals are finally in place to sustain a broad advance with the US Federal Reserve close to beginning a new cycle of rate cuts. The US Dollar has regained some lost ground, and with today’s weaker trend could still move either way. Much depends on bond market behaviour leading on to US Fed behaviour and US equities once the decline into yearend begins in earnest.

US Dollar

The dollar is still testing the rising wedge breakout in the longer term weekly chart. It has closed on a small bearish candle and the negative divergence is still active which both support weakness to follow. It does need to secure higher ground otherwise will be subject to further declines.

The short term 3 month daily chart illustrates recent strength with a sharp drop after the release of the US Fed minutes yesterday, all within expanding wedge pattern which suggests further weakness. It could move either way and probably will retrace some of the drop, but both oscillators are steadying for a trend change to support weakness.

Japanese Yen

The dollar / Yen has a breakout from the falling wedge up into a small bear flag, from recent dollar strength. The chart maintains its negative bias though, also with little support below the support zone. Any dollar weakness now will convert to Yen strength. The Slow Stochastic is turning at the top of its range and the MACD exhibits a generally weaker trend, both seemingly in support of further dollar weakness.

US Treasuries

US Treasuries continue to rally as the yield on the US10 year continues to decline, although slightly up on the week to close at 2.07% (1.96% last). The small ending reversal has yield breaking up through 10-Dema for the first time in 2 months (blue MA). The low US Treasury yields are the driving force behind any US Fed intention to cut the rate, the first of which is forecast for this month. Low yields provide the evidence of worsening economic conditions and are global, with cumulative global treasuries worth US$13trillion now having negative yield.


Despite this chaos and the likely end to the countertrend US treasury rally, yields will presumably still decline further before any meaningful recovery.

Gold

The decisive breakout through the massive 6 year basing pattern in the gold market continues to hold above the neckline. Much depends of US Fed behaviour, resultant dollar value, and US equities, but as long as the neckline holds the gold price may well move up to any of the indicated targets (blue) in the range of $1500 – $1700.

The 12 month daily chart illustrates breakout through long term resistance and that penetration through recent peaks at $1443 will promote another leg up. A prerequisite is to hold the breakout level, failing which lower support levels will be tested. Both oscillators indicate some downside first.

The short term 3 month chart highlights more detail of the consolidation in the peak price cluster indicating key support at $1385 and key resistance at $1443, with a slight lift in the tail after the US Fed minutes release. A break below $1385 will induce a pullback to test lower support levels.

South African Rand

The South African Rand continues to strengthen against the dollar as it drops further down the falling wedge pattern, below all the MAs to close at $13.97. This will have the effect of an eventual breakout to Rand weakness which is supported by both oscillators turning up after declining to the bottom of their range.

HUI / Gold Ratio

US miners continue to outperform an increased gold price as the HUI / Gold ratio breaks out to a new high. This occurred after the pennant formation broke up and increased above the previous high. Both oscillators are coming off the top of their range though which presupposes some downward correction next.

GDX US miners ETF

The GDX breakout in the long term weekly chart has consolidated above the 2½ year range-bound region. It needs to now thrust higher than its close at 26.20 in order to capitalise with some increase still available in the MACD but not the Slow Stochastic.

The daily 12 month chart illustrates the consolidation in more detail, and the need to penetrate to new highs. The chart structure is in an expanding triangle formation which could still thrust higher after correcting.

Dust US Miners Bear Index

The US Miners Bear index has a breakout which should lead to the next leg down, promoting continued strength for US miners. The chart structure is the near opposite of the GDX in an expanding triangle format with still more room to move.

Silver

Long term silver continues forming a bullish W bottom as it prepares to breakout of the bull flag. This will provide the energy for a meaningful silver rally, and the oscillators still have available upside.

The daily 12 month chart is constructing a bull flag within a bull flag, with a breakout at $15.50 prompting the next leg up, and a break down at $15.06 which will then test supports. This is about as constructive for silver as we have seen, and although the oscillators are declining they are looking to turn up.

The short term 3 month daily chart illustrates continued advance into another consolidation, within a bull flag. A breakout here is very bullish, with oscillators turning up in support. But, any decline below $15.06 will threaten the structure and any potential.

Silver Miners

Silver miners are enjoying a strong advance and creating a bullish pennant in the process. Any breakout and advance could potentially push up through resistance which would ignite silver itself. The bullish W bottom formation is also in place to add energy to an advance. But both oscillators are in decline and a breakdown below 25.75 must be avoided as this will then test lower support levels

USLV US Silver Miners Bull Index

US Silver miners bull index (Uslv) could provide another trigger for silver. The index is looking constructive for silver with an advance back above 50-Dema which includes 2 bullish candles plus oscillators turning up.

Gold : Silver Ratio

The gold / silver ratio continues its relentless rise, closing slightly higher again at 92.77. This continues to reflect the silver underperformance of gold which is negative for the whole precious metals complex, seemingly endlessly. But silver is finally indicating some measure of positive potential and may surprise on the upside soon. The chart also indicates the beginnings of a potential ‘top’ in development. As stated before, either silver generates a meaningful rally soon or gold and gold miners drop prices.

General Equities

General equities are behaving as forecast, moving towards a peak before a serious decline (20% – 22%) through the remainder of 2019. This is all in accordance with the continued development of a major global topping pattern that is likely to peak towards the end of 2020 to coincide with US presidential elections at that time.

Divergence in US indices continues with attendant loss of momentum, as they approach final new highs before the forecast major trend change which will witness a probable 20% decline during the rest of 2019.


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 Ind Ave) is at the moment moving up to complete a new high at D very soon. It is forecast to traverse the complete ABCDE pattern to complete a decline phase at E(4) by the end of 2019 at an index value of approximately 20 000. Thereafter, the Dow will enjoy an increase through 2020 to yet another new high at approximately 28 000 at (5) which is likely to be the final market top before a serious decline starts in early 2021.


A more detailed view of this is illustrated below.

  1. Dow rises to D very soon (July) at a new high of approximately 27 000;
  2. Declines to E (4) by Dec 2019 at approximately 20000;
  3. Advances to (5) by Dec 2020 at approximately 28000;
  4. This is the final market top;
  5. Start of major collapse in early 2021;
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Midweek Market 4 Jul 2019

Jul 4th, 2019 No comments

Executive summary

Donald Trump and Chinese President Xi met at G20 this week and agreed not to increase tariffs as they attempt to restore trade relations: Equities, bonds, and the dollar strengthened while gold corrected down. But gold reversed up again within days and has closed the month and quarter above $1385 and is holding the majority of its recent gains. That does not guarantee continued strength but it is a good sign.


Gold’s technicals and fundamentals are finally in place. It is outperforming all major currencies and the US Federal Reserve is weeks away from beginning a new cycle of rate cuts. The US Dollar has lost its uptrend. The near-term outlook is very strong and if the US Fed cuts rates three or four times and Gold strongly outperforms equities then this move can go much higher, with very little resistance from $1420/oz to the low $1500s and strong measured upside targets of $1600/oz to $1700/oz.


To add momentum, equities are likely to peak very soon with forecast strong declines in the next 6 months.


If Gold is going to trend higher towards $1600-$1700/oz, then the gold equities will run even stronger. GDX is trading below $26. A break past $31-$32, would trigger a measured upside target of almost $50, with even stronger gains for GDXJ (Junior miners).
If the Fed does cut rates three or four times and either the dollar declines more or gold outperforms equities, then gold should be able to reach the $1700/oz target. If only one of those things happen then it still has a good chance of reaching $1550.


It is generally, if grudgingly, accepted that the “paper gold” market (trading in futures contracts and options such as Comex) dictates the gold price, and that this enables price manipulation in delaying gold’s inevitable real valuation. It is also generally believed that demand for physical gold will eventually overwhelm this false situation, sending the metal to its intrinsic value somewhere north of $10,000/oz.


The timing of this shift in market dynamics is impossible to predict, but when it comes its early stage will look a lot like what’s happening right now.


However, keep in mind the major dichotomy in the market with some calling a new gold bull market, whilst Elliott Wave theory calls this still only a bear market rally.

US Dollar

The dollar is rising to test the breakout and has broken up through 50-Wema (equivalent to 250 day moving average) in the process. It needs to secure higher ground otherwise will be subject to further declines. Both oscillators are declining, confirming the generally bearish attitude of price direction, with the negative divergence still active.

The 12 month daily chart illustrates recent dollar strength could void the H&S pattern which seems likely with both oscillators rising.


There are rival propellants acting on price with strong resistance just above plus negative divergence and breakdowns through the rising wedge and H&S pattern on the one hand, with penetration through 200-Dema plus rising oscillators on the other.

The short term 3 month chart illustrates recent strength from the G20 trade announcement, as the dollar increases to test resistance. But, price needs to penetrate $96.42 otherwise declines will continue.

Japanese Yen

The dollar / Yen negative chart bias continues as dollar weakness / Yen strength is evident with price dropping down from the top of the reducing wedge: This is spite of recent dollar strength. Both oscillators are also rising reluctantly.

US Treasuries

US Treasuries continue to rally as the yield on the US10 year continues to decline, closing at 1.96%. Yield was this low last in Nov 2016, being a strong indicator of the forthcoming rate cut/s in the US. This is now very close to completion of the countertrend reversal in US Treasury yields.

Gold

The decisive breakout through the massive 6 year basing pattern in the gold market is holding above the neckline. The strength of the breakout is supported by increasing volume, surpassing volumes over the 6 year period, and especially those of the last gold peak in Aug 2011.


Taking the price cluster during 2011 and 2012 as a guide as well as the depth of the basing pattern, it can be seen that potential price increases could well reach the ‘potential target region’ (blue), at rally peaks of $1600 or $1700.

The decisive breakout in the gold market is well evident, but one of the impacting negative factors remains the non-conforming silver price. There is still a persistently high gold/silver ratio which traditionally has a damaging effect on the whole precious metals complex.


It is a double-edged sword however in that a silver price breakout is long overdue, given the positive impacts affecting gold at the moment. But, either silver enjoys a breakout rally or gold and gold miners reverse to lower prices.

The daily 12 month chart illustrates not only the breakout but also gold’s chart structure which promotes another upward penetration for the next leg up.

The short term 3 month chart illustrates gold correcting down to $1385 before a bullish Engulfing candle which could provide the energy for additional upward penetration. However, it closed yesterday on a bearish Evening Star candle which has the opposite effect.

South African Rand

The South African Rand continues to strengthen against the dollar as it drops further down the falling wedge pattern. This will have the effect of an eventual breakout to Rand weakness which is supported by both oscillators declining to the bottom of their range.


Price has penetrated through 200-Dema after 18 consecutive closes below 10-Dema which presupposes further dollar declines and Rand strength.

HUI / Gold Ratio

US miners continue to outperform an increased gold price during this rally as the ratio consolidates after the recent increases. The consolidation is taking the shape of a pennant which is a continuation pattern, for more of the same. Both oscillators are coming off the top of their range though which presupposes some downward correction first.

GDX US miners ETF

The GDX breakout above the 2½ year range-bound region is holding, and could still thrust higher after correcting. There appears to be much upside in the MACD still.

The daily 12 month chart is in an expanding wedge formation which could still thrust higher after correcting. But both oscillators are overbought and indicate a correction first.

The long term 8 year GDX chart illustrates the breakout potential to the next strong resistance at about 31.50 if gold continues higher towards $1600-$1700/oz. This will propel gold equities to run even stronger, and GDX would trigger a measured upside target of almost $50, with even stronger gains for GDXJ (Junior miners).

Silver

Long term silver is constructing a bullish W bottom as it prepares to breakout of the bull flag. This will provide the energy for a meaningful silver rally, and needs to be watched carefully.

The daily 12 month chart is consolidating at the top range of the bull flag and a breakout will result in a rally for the next potential leg up. So, silver is finally indicating some positive energy.

The short term 3 month daily chart illustrates continued advance into another consolidation. A bullish breakout will provide the next leg up, but any decline below $15.06 will threaten the structure and any potential.

Silver Miners

Silver miners are enjoying a strong advance and any potential push up through resistance could ignite silver itself. Price is now above all the MAs, but must avoid dropping below 25.75 if it is to maintain its potential. Both oscillators are at the top of their range and this could affect negatively.

USLV US Silver Miners Bull Index

Another silver trigger could be provided by the silver miners bull index (USLV). The index is looking constructive for silver with a pullback to 50-Dema followed by a bullish Engulfing candle. Both oscillators are drifting and not obviously negative.

Gold : Silver Ratio

The gold / silver ratio continues its relentless rise, closing slightly higher again at 92.65. This continues to reflect the silver underperformance of gold which is negative for the whole precious metals complex, seemingly endlessly.


But silver is finally indicating some measure of positive potential and may surprise on the upside soon. Either silver generates a meaningful rally soon or gold and gold miners drop prices.

General Equities
Divergence in US indices continues with attendant loss of momentum, as they approach final new highs before the forecast major trend change which will witness a probable 20% decline during the rest of 2019.

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 Ind Ave) is at the moment moving up to complete a new high at D very soon. It is forecast to traverse the complete ABCDE pattern to complete a decline phase at E(4) by the end of 2019 at an index value of approximately 20 000. Thereafter, the Dow will enjoy an increase through 2020 to yet another new high at approximately 28 000 at (5) which is likely to be the final market top before a serious decline starts in early 2021.


A more detailed view of this is illustrated below.

  1. Dow rises to D very soon (early Jul) at a new high of approximately 27 000;
  2. Declines to E (4) by Dec 2019 at approximately 20000;
  3. Advances to (5) by Dec 2020 at approximately 28000;
  4. This is the final market top;
  5. Start of major collapse in early 2021;
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