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Midweek Market 29 Aug 2019

Aug 29th, 2019 No comments

Executive summary

Trade wars continue to impact markets, up and down, but consensus indicates heightened conflicts ahead as the Trump tirade continues. In the meantime, US equities continue to consolidate before the next decline phase while US Treasuries complete the 11 month long countertrend rally before resuming the long term bear market, which is imminent. The US Treasury yield curve confirmed inversion below 1.00 this week as 10 year yield dropped below 2 year yield to 0.98, indicating the drift towards recession as economic conditions continue to deteriorate, probably more so globally than in the US itself. Although interest rates are probably near bottom, there still remains a period of central bank ‘silly season’ with more than $17trn global bonds yielding negatively, and the increasing (unthinkable) threat of US Treasuries actually going negative as well. This period will provide a few more potential (Trump prompted) rate cuts to try and fend off recession.

Gold is enjoying a powerful 3-month thrust after penetrating long term resistance at $1375 and is spiking in the region of $1550 in a rally which is busy terminating, give or take another $50. Silver finally came to life and spiked to $18.50, forming a non-confirmation with gold as silver starts to outperform gold after a period of lethargy. The investment community is ‘alive’ with commentaries of the new gold bull market, and is therefore completely opposite in view to Elliott Wave analysis (plus some others) which contends that gold has been in a bear market rally and is likely to still decline below $900-$1000 before reaching true bottom. Gold is likely to move much higher in the coming years, as confidence in currencies erodes, but not before declining substantially first as the USD Index soars.

US Dollar

The continued format in the US$ index is a rally since 2008 within overall long term decline. Despite any likely short term decline the dollar index may well strengthen as gold continues to decline, before eventually declining towards the low 60s in the next 5 years as the next gold bull market gathers momentum.

The dollar index increased slightly again this week as it continues to rise in the rising wedge as it drifts towards the triangle apex. This is a bearish pattern, and although it could strengthen further from here, the next phase is weakness as also indicated by the still active MACD divergence.

The daily 12 month chart illustrates the dollar increasing within the expanding triangle within a rising channel, whilst the negative divergence in the MACD remains active. This is a chart structure that indicates more strength first before a likely weakening phase for the dollar ahead.

The short term 3 month chart highlights the expanding triangle portion with the dollar now strengthening up to resistance, with all the MAs moving higher over the last 8 weeks. Both oscillators have more room to increase before the likely period of weakness starts.

Japanese Yen

The dollar / Yen currency pair is consolidating at the bottom of both a small declining channel within a large declining channel, at the end of a 6 month long period of stronger Yen / weaker dollar. There is no dollar support below this consolidation, but both oscillators are rising in support of dollar strength / Yen weakness. The negative MACD divergence should start price retracement up soon (strong dollar / weak Yen).

US Treasuries

The global bond market continues to hold more risk than at any time in history, with more than $17 trillion issued negative yield bonds worldwide. The US Treasuries 11 month long countertrend rally is all but complete and resumption of the long term bear market is imminent. Although interest rates are probably near bottom, there still remains a period of central bank ‘silly season’ with continued issuing of global bonds yielding negatively, and the increasing (unthinkable) threat of US Treasuries actually going negative as well. This period will provide a few more potential (Trump prompted) rate cuts to try and fend off recession.

The US Treasury yield curve confirmed inversion below 1.00 this week as 10 year yield dropped below 2 year yield to 0.98, indicating the drift towards recession as economic conditions continue to deteriorate, probably more so globally than in the US itself.

Inversion of the US yield curve this week is the first time since 2007, just before the Global Financial Crisis. Recession is coming to the US and it may take another 6-18 months to finally arrive, as it has already in a number of coutries.

Gold

Gold is enjoying a powerful 3-month thrust after penetrating long term resistance at $1375 and is spiking in the region of $1550 in a rally which is busy terminating, give or take another $50. There is non-confirmation between gold and spiking silver which is an indication of potential trend change. Gold is likely to move much higher in the coming years, as confidence in currencies erodes, but not before declining substantially first as the USD Index soars.

The daily 12 month chart illustrates the consolidation at the peak and signs of a potential top developing. There is a bearish marked drop in volumes, and both oscillators are in the upper regions of range in support of a correction soon.
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Gold is developing into a potential top with strong support below. A break below $1490 will test the support zone and support will have failed with a break below $1383. Both oscillators are drifting down in support of yet lower prices.

South African Rand

The dollar /ZAR currency pair is consolidating into a potential top which is still unconfirmed. Further dollar weakness will see Rand strength. Both oscillators are turning down from their top of their range which supports dollar weakness / Rand strength.

HUI / Gold Ratio

The ratio has a breakout to a new high, at the upper limit of the expanding triangle. Momentum is likely to strengthen the ratio further, especially with both oscillators increasing. The MACD has a distinctly rounded and bearish shape, and negative divergence is developing.

GDX US miners ETF

Similar commentary to the HUI/Gold ratio with GDX in a breakout to a new high, at the upper limit of the expanding triangle and rising wedge. Momentum is likely to strengthen the GDX further, especially with both oscillators increasing. But, the MACD has a distinctly rounded and bearish shape, with negative divergence becoming evident.

GDX closed at 30.41 and, as is evident in the long term 8 year chart, there is strong resistance at 31.50. So, momentum is positive but there are a number of negatives creeping in. Obviously, to penetrate 1.50 is very positive.

Dust US Miners Bear Index

The US Miners Bear index, as the inverse of GDX, has a breakout down to a new low. As with GDX, price has reached the bottom of the patterns and negative divergence is now in place to suggest a potential trend change soon.

Silver

Long term silver spiked up in multiple breakouts through earlier levels and patterns, in finally coming to life after a period of lethargy as it starts to outperform gold. In spiking to $18.50 silver formed a non-confirmation with gold which is an indication of a potential trend change.

The short term daily 3-month chart illustrates the spike to the top of the bear flag with both oscillators rising to the top of their range. The thrust up will be equalled or exceeded by the thrust down once a reversal starts, which will test support. This starts at $17.50, and if $15.92 is breached support will have failed.

Silver Miners

Silver miners have been the equal of silver itself also spiking up to a new high in multiple breakouts, in sympathy with the metal. The same implications apply to miners as to silver, with the new high at the top of both the rising wedge and the bear flag, with bearish implications. Also, negative divergence is developing as the MACD stair steps down.

Gold : Silver Ratio

The gold / silver ratio has a breakout in closing at 83.93 down below the previous low: A drop of 5% on the previous week. This is positive for the whole precious metals complex, provided the trend holds without reversing up again. 83.93 is as low as the ratio was 6 months ago, but unfortunately both oscillators are plummeting towards the bottom of their range, and the non-confirmation with gold is an indication of a potential trend change.

General Equities
Major US equity indices have started the decline phase which will see the Dow Jones decrease by up to 20%-22% between now and the start of 2020. This is all in accordance with the continued development of a major global topping pattern that is likely to eke out a recovery peak towards the end of 2020 to coincide with US presidential elections at that time.


Interestingly, Elliott Wave analysis indicates that because the decline in the Dow towards the end of 2018 comprised a corrective ABC wave count, it indicated that the decline was only temporary and that a further increase to a new high would follow. This proved correct, and the Dow increased to a new high at D.

Now, the Dow is again declining towards the end of 2019, and a comparison with 2018 is available as well as clear identification of the nature of the wave structure in the decline.

Consider the chart below which includes both periods and an hypothesis of what clues it may hold.

The 2018 decline from B to C was an ABC corrective wave count that extended over a period of 3 months.


Options for 2019 (Red and Blue on the chart):

Red If the decline replicates 2018 and is a corrective ABC, it will be quicker in terminating in Oct 2019, to be followed by an impulsive wave count to a new high into 2020, before the final market collapse;
Blue If the decline is impulsive (5 waves) from D down to E (blue) it may be slower in terminating in Dec 2019, to be followed by a corrective ABC up into 2020 and then down into the final market collapse;

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Midweek Market 22 Aug 2019

Aug 22nd, 2019 No comments

Executive summary

This coming week is important with markets at strong resistance levels and key breakouts will result in meaningful thrusts. Equities are on the brink of resuming major declines through to year end whilst the global bond market countertrend rally has peaked, being fraught with more risk now than at any time in history. There are now more than $16 trillion issued negative yield bonds globally, and earlier this week Germany issued a failed zero interest rate bond maturing in 2050 that was only 41.2% subscribed. Interest rates have bottomed and will now start increasing as the global bond market resumes its long term collapse, putting immense increased pressure on world economies and financial and monetary structures.


Both the US dollar and gold are close to completing their respective rallies: The dollar 12% since Jan 2018 and gold 43% since Dec 2015. Both may of course continue further before correcting down, and at some point will continue moving in opposite direction to each other, as is their normal want with gold quoted in dollars.


Popular on-line commentary has gold at the start of a new bull market, albeit with a correction down first, whilst Elliott Wave analysis had gold in a bear market rally with gold about to continue downward towards triple digits, albeit with a continued spike higher first.

US Dollar

The continued format in the US$ index is long term decline (black lines), although still in a rally since 2008 (blue lines). The dollar index may well vacillate further and perhaps even 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 also forecast in other long term models).

The dollar index increased slightly again this week as it continues to rise in the rising wedge in drifting towards the triangle apex. It could move either up or down from here in the short term in accordance with two opposing arguments, but is continually attracted down by the still active MACD divergence and the eventual break from the rising pattern in the chart.

The daily 12 month chart illustrates the dollar increasing within the expanding triangle within a rising channel, whilst the negative divergence in the MACD remains active. This is a chart structure that is likely to include a weakening phase for the dollar ahead, although both oscillators are rising with more space for further dollar strength first.

The short term 3 month chart highlights the expanding triangle portion with the dollar now strengthening up to resistance, although with more space to increase further. There is still momentum with 7 consecutive closes above 10-Dema with both oscillators rising in support.

The Cots data illustrates continued dilation, although not really increasing, which should result in the start of dollar weakness.

Japanese Yen

The dollar / Yen currency pair is consolidating at the bottom of both a small declining channel within a large declining channel, at the end of a 6 month long period of stronger Yen / weaker dollar. There is no dollar support below this consolidation, but both oscillators are rising in support of dollar strength / Yen weakness. The negative MACD divergence should start price retracement up soon (strong dollar / weak Yen).

US Treasuries

The global bond market is now fraught with more risk than at any time in history, with more than $16 trillion issued negative yield bonds worldwide. The failed German zero interest rate 2050 bond earlier this week has probably put the final nail in the coffin to herald the end of the global bond countertrend rally and the resumption of the long term bond bear market. This will put immense increased pressure on world economies and financial and monetary structures.


The US Treasury countertrend rally is now potentially complete with yield showing signs of bottoming. Using the past 12 months as a guide, yield probably needs consecutive closes above 50-Dema (red) to confirm the bottom, with the short term target at about 2.13%. This will start the new phase of increasing yields with gearing now at its greatest reflecting large bond losses with only small yield increases, likely to energise the US bond market collapse in the next phase.

Last week’s intraday US yield curve inversion has followed up this week with another drop down to 1.019 which is a small tick from inversion again. This heralds on-coming recession in the US and therefore globally also, although probably many months away. It also indicates equity and bond market declines and gold market strength.

Gold

Long term gold has a strong chart from Dec 2016 to now with price spiking towards its rally completion. The top is still not confirmed and therefore may continue higher still. A correction is forecast and, with both oscillators at the top of their range, this is probably a given. US miners are not as bullish as gold and may be the catalyst for a correction, but much depends on dollar behaviour.

The daily 12 month chart illustrates the consolidation at the peak and signs of a potential top developing. There is a bearish marked drop in volumes, and both oscillators are turning down from the top of their range in support of a correction.
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Gold is developing into a potential top with strong support below. A break below $1490 will test the support zone and support will have failed with a break below $1383. Both oscillators are drifting down in support of yet lower prices.

Cots data illustrates the massive and ever widening dilation which promises a gold correction. This is based on Commercials building extremely large short positions and Large Speculators building extremely large long positions: Also, that Commercials are correct and Speculators are traditionally incorrect. This combination, reflected in extended dilation (red circle), is extremely bearish gold with strong indication of price reversal soon. Dilation in the red / green graph heralds lower gold prices while narrowing heralds higher prices. And, remember the Cots data is available only on Friday, which means the chart you see is also nearly a week old.

South African Rand

The dollar /ZAR currency pair is consolidating into a potential top which is still unconfirmed. Further dollar weakness will see Rand strength. Both oscillators are turning down from their top of their range which supports dollar weakness / Rand strength.

HUI / Gold Ratio

The ratio has vacillated into a consolidation which is developing into a potential top, in the upper regions of the expanding triangle. While the chart structure indicates potential weakness both oscillators are turning up from their downward movement. This presents as a somewhat mixed picture as the standoff between metals and miners intensifies. The MACD has a distinctly rounded and bearish shape.

GDX US miners ETF

Long term GDX is beginning to consolidate at the top of the expanding triangle and, with both oscillators beginning to turn down, presents as a bearish chart structure.

The daily 12 month chart illustrates GDX consolidating just below the peak into a developing top, at the top of both rising patterns (bearish). Also, both oscillators are turning down in support of weakness and the MACD is in a bearish rounded formation.

Dust US Miners Bear Index

The US Miners Bear index, as the inverse of GDX, is consolidating at the bottom of the expanding triangle and reducing wedge. But price is somewhat mixed and has some way to go before developing into a potential bottom: it closed below 10-Dema again. However, both oscillators are rising and the whole chart has a structure which promises higher prices next, which is negative for US miners.

Silver

Long term silver has come down from its peak at the top of the expanding triangle. This may or may not be confirmed as a top with both oscillators still rising slowly. The chart still has negative bias, and a breakout is necessary if moving down to test support is to be avoided. Silver is still underperforming gold, as reflected in the gold/silver ratio analysis, which remains negative for the whole precious metals complex.

The daily 12 month chart illustrates the silver consolidation which could be developing into a potential top at the top of both the rising patterns. There is a bearish marked drop in volumes, and both oscillators are turning down from the top of their range in support of a correction.

Consolidation at the top of the bear flag could develop into a potential top. A break below $16.78 will test support and support will have failed with a break below $15.92. Both oscillators are drifting down in support of lower silver prices.

Silver Miners

Silver miners are consolidating below the peak at the top of both rising patterns, which could develop into a top. Both oscillators are moving down in support of this. Once silver miners start moving down this will in turn develop into lower silver prices.

Gold : Silver Ratio

The gold / silver ratio continues in a slow drift toward a higher ratio, as gold maintains slight outperformance of silver. This is negative for the whole precious metals complex, and the drift toward higher ratios may continue. Both oscillators are negative, but with MACD divergence providing some downward energy the ratio may yet turn lower.

This long term 50 year chart of the gold/silver ratio assists in keeping perspective of where we are now in the overall picture. The 2 green verticals are gold peaks and the purple verticals are gold troughs, with the horizontal indicators being the gold / silver ratio read off the vertical scale on the right.
• From the gold peak in 1980 to 1993: increasing ratio;
• From 1993 to gold peak in 2011: reducing ratio;
• from 2011 to now: increasing ratio;
But note the multi-year H&S (red line) which has now been penetrated on the upside. This should lead to yet much higher ratios and much lower precious metal prices.

General Equities
Major US equity indices have started the decline phase which will see the Dow Jones decrease by up to 20%-22% between now and the start of 2020. This is all in accordance with the continued development of a major global topping pattern that is likely 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, using the Dow Jones Ind Ave as a proxy, has now started to decline towards E. It is forecast to traverse the complete ABCDE pattern to complete a decline phase at E(4) by the new year 2020 at an index value of approximately 20 000. Optionally, either the Dow continues to collapse from there or 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. The Dow is declining from D to E, and has already penetrated 50-Wema (equivalent of 250 day moving average);
  2. Declines to E (4) by Dec 2019 at approximately 20 000;
  3. Advances to (5) by Dec 2020 at approximately 28 000;
  4. This is the final market top;
  5. Start of major collapse in early 2021;
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Midweek Market 15 Aug 2019

Aug 15th, 2019 No comments

Executive summary

Fear of market contraction is resulting in the decrease in interest rates and the push to ready central banks for additional QE applications, because the global economy has not only partially recovered from 2008 but is now moving steadily towards a much bigger systemic crisis. This process is setting up global markets for a massive rotation event over the next year or two.

Also, other factors continue to plague markets such as US/China trade issues, global debt, and various other economic output issues. The US Fed and other global central banks set up an easy money process over the past 10 years that continued to depreciate the value of money that is now moving toward a shift in confidence from fiat currencies to hard assets, such as gold.

However, much is still to develop as the current gold rally runs its course to eventual price decline before reaching true bottom in what is still only a bear market rally. US dollar strength is likely to be a given in the chaos that lies ahead as the rotation event materialises in many different areas of collapse. US Treasuries have peaked in a countertrend rally with extreme investor optimism which has driven yields to lows last seen at the end of the bond bull market in mid-2016.

Meanwhile, the general equity decline phase has started which will see the Dow Jones decrease by up to 20%-22% between now and the start of 2020.

US Dollar

It is good to remember the US$ is in long term decline (black lines), although still 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 also forecast by other long term models).

The dollar index increased slightly this week as rises in the rising wedge in drifting towards the triangle apex in the chart. It could move either up or down from here in the short term in accordance with two opposing arguments, but is continually attracted down by the still active MACD divergence and the eventual break from the rising pattern in the chart.

The daily 12 month chart illustrates dollar retracement up within the rising expanding triangle formation, which could still extend gains. Both oscillators are turning up in support of this.

The short term 3 month chart illustrates the dollar advance which now includes 2 consecutive closes above 10-Dema (blue), having bounced off support at 50-Dema (red). Both oscillators look set to turn higher.

Japanese Yen

The dollar / Yen currency pair maintains a negative bias (weak dollar / strong Yen), declining into a 6-month run of stronger Yen. Price is once again dropping towards the bottom edge of the declining channel with no further support below the support line (red). However, both oscillators are turning up from the bottom of their range and the MACD divergence should start price retracement up soon (strong dollar / weak Yen).

US Treasuries

The US Treasury countertrend rally is now potentially complete and is about to enter a new phase of increasing yields. At the potential end to the countertrend rally, yield on the US Treasury 10 year note closed at 1.59% which is virtually as low as the 1.37% reached at the end of the US bond bull market in mid-2016. Gearing is now at its greatest with small yield increases reflecting large bond losses which is likely to energise the US bond market collapse in the next phase.

While the world watches attentively to the global economic slowdown and encroaching recession, the US yield curve (10 year / 2 year) inverted intraday this week. This is said to herald on-coming recession in the US and the yield curve obligingly moved in the correct direction after a 6 month hiatus.

Gold
Gold commentary is not much different from last week, except to say that precious metal miners are beginning to react down. This could have the effect of pulling the metals down into a correction as well.

Gold has a strong chart from Dec 2016 to now. But it is spiking towards its rally completion, with oscillators at the top of their range. It is enjoying a 30% gain in one year from Aug 2018 to Aug 2019, with the spectre of a sharp correction very soon. US miners have moved down which is likely to pull gold with it.

The daily 12 month chart illustrates the consolidation above the mini-break at the top edge of the expanding triangle, as price spikes up toward rally completion with both oscillators at the top of their range and starting to turn down.
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Gold has strong support in the consolidation below the spike with the key break level at $1490, below which the support zone will be tested. Support extends down to $1383, below which support will have failed.

Cots data has the Commercials building extremely large short positions and Large Speculators building extremely large long positions. This combination, reflected in extended dilation (red circle), is extremely bearish gold with strong indication of price reversal soon. Dilation in the red / green graph heralds lower gold prices while narrowing heralds higher prices. And, remember the Cots data is available only on Friday, which means the chart you see is also nearly a week old.

South African Rand

The South African Rand has a breakout to yet weaker levels against the dollar, which now extend to 3 weeks of lower prices, well ahead of the MAs. Value is trending up towards the upper limit of the expanding triangle, with still more room to move which indicates further weakening. Price closed yesterday on a large Engulfing candle which indicates yet higher dollar value / lower Rand. But both oscillators are oversold with the Slow Stochastic starting to turn down, indicating a potential correction likely soon.

HUI / Gold Ratio

The ratio ratcheted down this week penetrating earlier support indicating lower US miners against the strong gold price. Miners tend to move ahead of metals and this move could provide the energy for a downward gold correction. Both oscillators are moving down in support of lower prices and the MACD has a distinctly rounded and bearish shape.

GDX US miners ETF

Long term GDX has a breakout of the expanding triangle pattern but closes back into the pattern. It reflects as a strong rally with price well ahead of the MAs. But the chart shape and oscillator behaviour indicate a correction soon.

The daily 12 month chart illustrates GDX correcting down from the peak, against the continued strong precious metal prices. This is a negative divergence, with price still within bearish rising chart patterns. Both oscillators are poised to weaken and MACD has formed a distinctly bearish and bowed top pattern.

Dust US Miners Bear Index

The US Miners Bear index, as the inverse of GDX, has a small correction up from the bottom of the expanding triangle formation which includes a close above 10-Dema for the first time in 10 trading days. This could be the start of a correction with both oscillators looking to turn up. A turn up is negative for US miners.

Silver

Silver has a breakout through long term diagonal resistance, but the chart still has negative bias. The rally from Oct is positive in an expanding triangle with price at a new high at the upper limit of the pattern. Silver now needs to penetrate resistance or face testing of support lower down. Both oscillators are rising but close to the end of their range. Silver has started once again to underperform gold, as reflected in the gold/silver ratio which increased slightly again this week.

The daily 12 month chart illustrates the silver spike to a new high at the top edge of the expanding triangle pattern, but also the strong advance from late May in what is now a bear flag. This reinforces the need for a breakout which will otherwise have to test support with the threatening penetration down through the flag pattern. Both oscillators are reasonably overbought supporting lower prices ahead.

The 3 month chart illustrates the advance to a new high with both oscillators at the top of their range. There is also divergence with silver miners turning down which may well provide the energy for a downward silver correction soon.

Silver Miners

Silver miners turned down from the new high and are close to testing support. Miners usually lead the metals and with both oscillators trending down this may well develop further into a more severe correction which will in turn lead to lower silver prices.

Gold : Silver Ratio

The gold / silver ratio increased slightly again this week as gold continues to outperform silver. This is negative for the whole precious metals complex, and the drift toward higher ratios may continue. Both oscillators are negative, but with MACD divergence providing some downward energy the ratio may yet turn lower.

General Equities
Major US equity indices have started the decline phase which will see the Dow Jones decrease by up to 20%-22% between now and the start of 2020. This is all in accordance with the continued development of a major global topping pattern that is likely 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, using the Dow Jones Ind Ave as a proxy, has now started to decline towards E. It is forecast to traverse the complete ABCDE pattern to complete a decline phase at E(4) by the new year 2020 at an index value of approximately 20 000. Optionally, either the Dow continues to collapse from there or 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. The Dow is declining from D to E, and has already penetrated 50-Wema (equivalent of 250 day moving average);
  2. Declines to E (4) by Dec 2019 at approximately 20 000;
  3. Advances to (5) by Dec 2020 at approximately 28 000;
  4. This is the final market top;
  5. Start of major collapse in early 2021;
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Midweek Market 8 Aug 2019

Aug 8th, 2019 No comments

Executive summary

The gold ‘train’ has been jerked into rapid and exciting movement, seemingly by an exhausted dollar and the stress of the newly-opened currency front of the US – China trade war.

The gold breakout through the multi-year basing pattern at $1370 in June signalled a new bull market for many observers. The initial surge took gold to $1438 before prices consolidated in an upward bias with enthusiasm swamping the need for a correction. The recent breakout at $1453 in early August provided the energy to penetrate $1500, but the frenetic climb is now due an extended multi-week correction. There is powerful resistance ahead from the 2013 price declines near $1525, as well as strong Commercial short positions building in the Cots data which should retard any further price advances, and trigger the correction.

Keep in mind also that Elliott Wave analysis has it that the gold rally is nothing more than further price declines in what has only been a bear market rally. At this stage the correction may prove to be temporary with higher prices still to come, or it may be the end of the rally.

Meanwhile, the general equity decline phase has started which will see the Dow Jones decrease by up to 20%-22% between now and the start of 2020. This next phase will also see an end to the countertrend rally in longer term US Treasuries as yields finally begin to bottom in a resumption of the bear market which started in mid-2016.

The US dollar has weakened slightly in its current rally and is likely to continue in zig-zag movement before resuming the rally. Dollar strength is likely to be a given in the chaos that lies ahead in declining general equities worldwide, lower oil prices, increased political friction, and deteriorating trade relations.

US Dollar

The US$ long term decline (black lines) is still intact, although so also is the 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 also forecast by other long term models).

Dollar strength waned slightly in turning down from resistance, as it slowly bends to the force of negative divergence in the MACD. The dollar is likely to weaken further in the short term, but could still move either up or down within the rising wedge pattern. Both oscillators are also stalling in sympathy with this, and more time is required to determine more accuracy in direction.

The daily 12 month chart illustrates strong dollar retracement down within the rising expanding triangle formation. Both oscillators indicate further dollar weakness in the short term. The whole chart presents as a strong upward sloping pattern that is due further correction down.

However, the short term 3 month chart illustrates support at 50-Dema as well as some indecision with the closing Doji candle.

Japanese Yen

The dollar / Yen currency pair maintains a negative bias (weak dollar / strong Yen), declining into earlier support. Price is at the bottom edge of the declining channel which has now run into 5 months of weaker dollar / stronger Yen. Although there is little support at current values (red line) there is MACD divergence which indicates a stronger dollar correction soon.

US Treasuries

The US Treasury countertrend rally is now potentially complete after a 15% drop in yield this week created MACD divergence. This could potentially start correcting into a reversal which may very soon start increasing US bond yields. Once a bottom is confirmed it will herald resumption of the US bond bear market which started in mid-2016.

Gold

Gold has a strong chart from Dec 2016 to now. But it is spiking towards its rally completion, with oscillators at the top of their range. It is enjoying a 30% gain in one year from Aug 2018 to Aug 2019, with the spectre of a sharp correction very soon.

The daily 12 month chart illustrates the flag breakout to the top edge of the expanding triangle, as price spikes up toward rally completion with both oscillators at the top of their range.

Gold has strong support in the consolidation below the spike with the key break level at $1455, below which the support zone extends down to $1383.

In the Cots data the Commercials have large (and increasing) short positions which indicate a decline in the gold price. Similarly, the Large Speculators have large (and increasing) long positions which also indicate a decline in the gold price, because they are notoriously always wrong. Hence, dilation in the red / green graph heralds lower gold prices while narrowing heralds a higher price. And, remember the Cots data is available only on Friday, which means the chart you see is also nearly a week old.

South African Rand

The South African Rand has a breakout to yet weaker levels against the dollar, which now extend to 2 weeks of lower prices, well ahead of the MAs. Value is trending up towards the upper limit of the expanding triangle, with still more room to move which indicates further weakening. But both oscillators are oversold which indicates a potential correction is now likley.

HUI / Gold Ratio

US miners reacted negatively to the US Fed announcement last week but have ratcheted up against gold this week. But despite that there is no new high and the oscillators are mixed and dithering. Perhaps this is the precursor to the start of a correction.

GDX US miners ETF

Long term GDX has a breakout of the expanding triangle pattern but closes back into the pattern. It reflects as a strong rally and is due a correction with overbought oscillators.

The daily 12 month chart illustrates GDX peaking strongly in a bearish rising wedge pattern which could correct down soon with overbought oscillators.

Dust US Miners Bear Index

The US Miners Bear index, as the inverse of GDX, has a breakout to a new low at the bottom edge of the expanding triangle pattern. It too is liable to correct up soon with oscillators at the bottom of their range, which is negative for US miners.

Silver

Long term silver spikes to a new high at the top limit of the expanding triangle pattern, although still in a chart with negative bias. It needs to break up to test resistance otherwise will drop back and start to test support. Silver has started once again to underperform gold, as reflected in the gold/silver ratio which increased slightly this week.

The daily 12 month chart illustrates the silver spike to a new high at the top edge of the expanding triangle pattern, but also the strong advance from late May in what is now a bear flag. This reinforces the need for a breakout which will otherwise have to test support with the threatening penetration down through the flag pattern. Both oscillators are reasonably overbought supporting lower prices ahead.

Silver Miners

Silver miners are lagging the silver price itself in eking out a new high within two bearish patterns in a rising wedge and bear flag.

As with gold although not as pronounced, silver Cots data has Commercials with large (and increasing) short positions which indicate a decline in the silver price. Similarly, the Large Speculators have large (and increasing) long positions which also indicate a decline in the silver price, because they are notoriously always wrong. Hence, dilation in the red / green graph heralds lower silver prices while narrowing heralds a higher price. And, remember the Cots data is available only on Friday, which means the chart you see is also nearly a week old.

Gold : Silver Ratio

The gold / silver ratio increased again this week as gold continues to outperform silver. The ratio closed slightly up at 88.37 which means the drift towards a higher ratio seems to have started again which is negative for the whole precious metals complex.

General Equities
Major US equity indices have started the decline phase which will see the Dow Jones decrease by up to 20%-22% between now and the start of 2020. This is all in accordance with the continued development of a major global topping pattern that is likely 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, using the Dow Jones Ind Ave as a proxy, has now started to decline towards E. It is forecast to traverse the complete ABCDE pattern to complete a decline phase at E(4) by the new year 2020 at an index value of approximately 20 000. Optionally, either the Dow continues to collapse from there or 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. The Dow is declining from D to E, and has already penetrated 50-Wema (equivalent of 250 day moving average);
  2. Declines to E (4) by Dec 2019 at approximately 20 000;
  3. Advances to (5) by Dec 2020 at approximately 28 000;
  4. This is the final market top;
  5. Start of major collapse in early 2021;
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Midweek Market 1 Aug 2019

Aug 1st, 2019 No comments

Executive summary

The US Fed cut the rate by 25 basis points yesterday, in what is described by many as the first rate cut in the new cycle which by definition means more cuts to come. But they are backed into a corner like never before. The tightening cycle of the last three years, to try and stabilise and prepare for the chaos that lies ahead, has been a dismal failure in a world of slowing economies that face recession, or worse. So presumably they must now resort to further easing, which is described by many as hyper monetary inflation leading to further QE.

If the QE option is chosen then the US Fed must start acting as before by adding bond purchases in order to drop bond yields so they can cut rates further. But this is exactly what caused the bond market crisis in the first place, globally. Some have described that as the new subprime problem: The new Global Subprime Bond which will kill the international monetary system eventually.

The alternative, which is to stall further cuts (or actually raise rates to finally start correcting the ills of the past) will decimate equity and bond markets worldwide.


The rate cut pronouncement yesterday satisfied few (least of all Donald Trump) and prompted lower equities, stronger dollar, and lower gold. This could signal the start of an equity decline phase which will decrease values by up to 20%-22% by the start of 2020. This next phase will also see an end to the countertrend rally in longer term US Treasuries as yields finally begin to bottom in a resumption of the bear market which started in mid-2016.

The US dollar continued to strengthen as precious metals weakened after the US Fed announcement, but could easily correct after market digestion, as volatility levels increase. However, multiple signals in breakdowns of US gold miners as well as bearish silver behaviour indicate that the rally in precious metals has probably run its course.

US Dollar

The US$ long term decline (black lines) is still intact, although so also is the 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).

Dollar strength has invalidated the earlier rising wedge breakout and is starting to test resistance. Both oscillators are rising in support of further strength, although negative divergence with MACD is still active, and this will induce lower prices later on.

The daily 12 month chart illustrates the strong extension of the recent breakout up to a double top which could prompt a correction down as rally exhaustion seems imminent. The whole chart presents as a strong upward sloping pattern that is due a correction down. This is supported by both oscillators at the top of their range.

Japanese Yen

The dollar / Yen currency pair maintains a negative bias (weak dollar / strong Yen) with little dollar support below the support zone. But price has broken up through the reducing wedge (strong dollar / weak Yen) to start testing resistance. Both oscillators are in support of further dollar strength / Yen weakness, together with negative divergence in the MACD.

US Treasuries

The US Treasury countertrend rally is close to completion but is still not complete, as indicated in the benchmark US Treasury 10 year yield. Yield continues to weaken and looks set to drop below the previous low at the beginning of July. This is now very close to a bottom as increased signs of divergence become apparent. Once a bottom is confirmed it will herald completion of the countertrend rally which will then resume into the US bond bear market (started in mid-2016).

Gold
The Gold price weakened after the US Fed announcement yesterday but is still not reflected in the Stockcharts data as this document was written. Gold in the charts closed at $1437.80 but is actually $30 weaker in reality.

The long term weekly gold chart illustrates price holding at higher levels within the small bear flag but has actually penetrated down towards support. This reflects on both oscillators hovering at higher levels in their range.

Gold is actually breaching the bottom of the bear flag as it hovers above support.

The short term 3 month chart illustrates the very constructive chart structure which has now been breached on the downside with the gold price at $1407 as this is written.

South African Rand

The South African Rand has a breakout to weaker levels. The falling wedge has been breached up towards resistance after a 2 month strengthening phase, which could now be tested.

HUI / Gold Ratio

US miners reacted negatively to the US Fed announcement with the chart reflecting a sharp drop against gold. Both gold and HUI latest prices are reflected in the StockCharts data as this is written.

GDX US miners ETF

Long term GDX turns down at resistance after its strong rally. The question is whether the rally continues after this correction, and the chart structure and oscillators indicate that lower prices lie ahead.

The daily 12 month chart illustrates GDX dropping through key levels below the recent peak. Both oscillators support further declines in the price.

Dust US Miners Bear Index

The US Miners Bear index corrected up from the recent low with minor breaks through a key level. This is the start of a correction and positioning of both oscillators indicates further increases. Higher Dust prices are negative for US miners.

Silver
The Silver price weakened after the US Fed announcement yesterday but is still not reflected in the Stockcharts data as this document was written. Silver in the charts closed at $16.41 but is actually $0.50 (or 3%) as this is written.

Long term silver breakout is testing diagonal resistance in the chart but has actually penetrated down with the latest price at $15.97. Silver behaviour is bearish and has enabled gold to start outperforming, as long periods before. Price is starting to invalidate the bullish W bottom formation.

The daily 12 month chart is suggesting the silver breakout could be false, which it actually is with the current price below $16. Both oscillators are at the top of their range supporting lower prices ahead.

The short term 3 month daily chart illustrates the break to the downside with actual price below $16, and with support for lower prices from both oscillators.

Silver Miners

Silver miners break down strongly into earlier support as they begin to drop faster than silver itself.

Gold : Silver Ratio

The gold / silver ratio increased this week as gold begins to outperform silver again. The ratio closed at 87.64 which invalidates the earlier breakout from the bear flag formation. Both oscillators indicate further increases in the ratio which is negative for the whole precious metals complex.

General Equities
Major US equity indices have completed forecast rallies to new highs and are now indicating the start of a 6 month decline phase towards new year which could decrease values by up to 20%-22%.

This is all in accordance with the continued development of a major global topping pattern that is likely 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, using the Dow Jones Ind Ave as a proxy, has now started to indicate completion of the new high at D, and has started to decline towards E. This looks the likely course now but is still to be confirmed. It is forecast to traverse the complete ABCDE pattern to complete a decline phase at E(4) by the new year 2020 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 27 400;
  2. Declines to E (4) by Dec 2019 at approximately 20 000;
  3. Advances to (5) by Dec 2020 at approximately 28 000;
  4. This is the final market top;
  5. Start of major collapse in early 2021;
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