Home > Uncategorized > Midweek Market 11 Jul 2019

Midweek Market 11 Jul 2019

Jul 11th, 2019

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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