Home > Uncategorized > Midweek Market 18 Jul 2019

Midweek Market 18 Jul 2019

Jul 18th, 2019

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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