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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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