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Midweek Market 5 Sep 2019

Sep 5th, 2019

Executive summary

General equities continue to hover in a potential correction in the continued development of a major global topping pattern that is leading to the next systemic crisis and market collapse. Once the correction completes it will see the Dow Jones decline substantially in either a rapid ‘corrective’ drop or perhaps a slower ‘impulsive’ drop. A rapid ‘corrective’ decline into October will likely be followed by a rise into 2020 to a new high to coincide with US presidential elections in Nov next year, to be followed by the start of the major collapse. Alternatively, a slower ‘impulsive’ decline into yearend 2019 will indicate the main trend has changed to down and assume collapse characteristics indicating this to already be the start of the major collapse. Global equities take their lead from the US and will follow the same patterns.

The US yield curve inversion has signaled the coming recession in America which may be 6 – 12 months away, while global economies, partly already in recession, continue to deteriorate. The global rampant trend towards negative yield, especially in the first world, continues a-pace with now more than $17 trillion worth of negative yield Treasuries. This means ultra-low interest rates and a ‘bubble’ in the so-called risk free Sovereign bond market which is partly the cause of current gold strength. It also means a few more US Fed rate cuts in trying to fend off recession, as well as the increased risk of US Treasuries actually going negative.

The gold rally is running into long term resistance as silver continues to spike, resulting in a non-confirmation which is typically the signal for a potential trend change. In fact there are many non-confirmations in the total market suggesting a break with most of the current trends. The US dollar has peaked and is weakening, which should usually mean still higher gold prices as they often move in opposite direction. But this is not always the case, and with extreme investor sentiment in both these asset classes at the moment, it seems that soon both will trend down together.

US Dollar

The continued format in the US$ index is overall long term decline with a rally since 2008. 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 weakened slightly this week as it continues to rise in the rising wedge in drifting towards the triangle apex. This is a bearish pattern, and together with usually powerful negative divergence, the next phase should be weakness.

The daily 12 month chart illustrates dollar decline after the bearish Evening Star candle. The dollar is close to the top of the rising channel and with both oscillators at the top of their range, should see further weakness. Also, the negative divergence in the MACD remains active.

Japanese Yen

The dollar / Yen currency pair is still 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, plus the usually powerful effect of negative MACD divergence.

US Treasuries

The US Treasury countertrend rally is still in progress and still not complete. Therefore there should still be lower yields before any confirmed bottom in the chart. The global bond market continues to hold more risk than at any time in history, and the period of central bank ‘silly season’ continues with still more issuing of global bonds yielding negatively. This means ultra-low interest rates and a ‘bubble’ in the so-called risk free Sovereign bond market which is partly the cause of current gold strength. It also means a few more US Fed rate cuts in trying to fend off recession, as well as the increased risk of US Treasuries actually going negative.

Gold

The University of Michigan ‘Consumer Sentiment Index’ is a reflection of the ‘mood’ in America. It moves in swathes of about 10 years each way, and now has a breakout indicating another 10 years of ‘gloom’ ahead. The gold price tends to move in the opposite direction, and it too has a breakout in 2019 indicating higher prices.

Gold also had a breakout in 2002, as ‘gloom’ set in after the 2000 tech bubble collapse. The gold breakout led to the market high in Aug 2011 during which the gold price increased by about 600%. The breakout now is equally likely to increase the gold price by more than 600% in the next 10 years.

A closer look at the 2019 gold breakout illustrates the major resistance that the gold price is now encountering. This is likely to trigger a correction back towards the breakout level of $1380, once peak exhaustion caps any further advance. Elliott Wave analysis, in opposition to normal technical analysis, has it that gold is in a corrective ABC wave count from the high in Aug 2011 that will take the price down below $1045 (Dec 2015 low) to probably in the region of $1000-$900.

The gold spike is probably not complete yet, but is close to completion. Once a top is confirmed with a break below $1500 a correction down to test the original breakout level of $1380 is likely. Both oscillators are at the top of their range indicating correction soon. Gold is likely to move much higher in the coming years, as confidence in currencies erodes, but not before declining substantially first.

The daily 12 month chart illustrates the consolidation at the peak and signs of a potential top developing. Silver’s spike to a new peak creates a non-confirmation with gold which is a usual bearish sign of a pending trend reversal. Both oscillators are in the upper regions of range in support of a correction soon and price activity is at the upper edge of the expanding triangle.

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 has a breakout through the bottom of the consolidation as the Rand strengthens through earlier support towards stronger support levels. There are 2 consecutive closes below 10-Dema confirming a top as price drops down from the upper edge of the expanding triangle. Both oscillators are dropping and the MACD still has some way to go.

HUI / Gold Ratio

The ratio is developing into a top and has a Doji candle at the peak of the latest consolidation which indicates indecision. Price is at the upper region of the expanding triangle, and a top will be confirmed with further downside this week because of the negative MACD divergence.

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. The MACD is stair stepping down and negative divergence exerts some force of a price correction soon.

GDX Junior Gold ETF

GDX Juniors have no new high and create a bearish non-confirmation with GDX itself indicating the increased potential for a trend change soon. This chart too has a bearish dome top MACD with negative divergence developing.

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. But the bottom is still not confirmed, and could go lower.

Silver

Long term silver spiked up further in multiple breakouts through earlier levels and patterns, as it continues to outperform gold. However the new peak creates a bearish non-confirmation with gold which usually happens prior to trend change.

The short term daily 3-month chart illustrates the continued spike as silver outperforms gold. Both oscillators are at the top of their range which promises a correction soon. 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.

Gold : Silver Ratio

The gold / silver ratio has dropped another 5% this week to close below 80 for the first time in 12 months. This is positive for the whole precious metals complex, provided the trend holds without reversing up again. Unfortunately both oscillators have plummeted to the bottom of their range, and the correction up could be as powerful as the plummet down

General Equities
General equities continue to hover in a potential correction in the continued development of a major global topping pattern that is leading to the next systemic crisis and market collapse. Once the correction completes it will see the Dow Jones decline substantially in either a rapid ‘corrective’ drop or perhaps a slower ‘impulsive’ drop. A rapid ‘corrective’ decline into October will likely be followed by a rise into 2020 to a new high to coincide with US presidential elections in Nov next year, to be followed by the start of the major collapse. Alternatively, a slower ‘impulsive’ decline into yearend 2019 will indicate the main trend has changed to down and assume collapse characteristics indicating this to already be the start of the major collapse. Global equities take their lead from the US and will follow the same patterns.

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

The 2 options of ‘corrective’ (red) or ‘impulsive (blue) are indicated on the chart:
Red If the decline 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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