Home > Uncategorized > Midweek Market 19 Sep 2019

Midweek Market 19 Sep 2019

Sep 19th, 2019

Executive summary

The US Fed cut the rate by 25 basis points yesterday to keep in touch with yield movement of short term US Treasuries, as they try to fend off recession in America. The US yield curve has weakened correspondingly but, contrary to logic, the US dollar has not, probably because the ‘balance of power’ still resides in the dollar with recent rate cuts elsewhere (notably the EU). Despite a slight weakening in long term US Treasury yields, the end of the countertrend rally seems to have arrived. This means the resumption of the long term collapse in US Treasuries with corresponding increases in yield. It will be interesting to witness how this will affect attempts to continue to cut rates.

US equities continue to remain elevated as they continue to development of a major topping pattern that is leading to the next global systemic crisis and market collapse. Using the Dow Jones Industrial Average as a proxy for US equities it can be seen that there are extremely interesting elements in the wave structure as it develops. These are discussed in more detail in the body copy, but can be grouped basically into 2 (two) outcomes:
• Strong decline now leading into strong recovery into 2020 to new highs to coincide with US presidential elections in Nov 2020, before the final market collapse begins;
• Continued advance now to new highs, invalidating the Elliott Wave expanding triangle pattern, before the final market collapse begins in 2019;

These two options are being watched carefully to verify outcomes as soon as possible.

The big decline in precious metals is underway as prices are forecast to drop below the Dec 2015 low before true bottom is reached and the eventual start of the next gold bull market. There are a number of support levels (especially $1383) to the gold price and these will of course provide temporary price improvements as they are triggered.

The US$ has sustained a strengthening phase since the start of 2018 which is soon likely to correct into weakness, especially with the likely round of more US Fed rate cuts to fend off recession. During this phase gold and the dollar will therefore weaken together, and not opposite to one another which is more usual. Many commentators are forecasting dollar strength in the period ahead, especially once chaos increases in markets and the dollar is perceived as a ‘safe haven’. Once gold starts to decline seriously it may be that the dollar at that stage will strengthen, and move opposite to each other in the more usual format. Much depends on equity and bond market behaviour.

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 increased this week as it continues towards the wedge apex. This is a bearish pattern with the promise of weakness ahead together with the force of the powerful negative MACD divergence.

The daily 12 month chart illustrates the dollar edging up from the bottom of the expanding triangle pattern, still within the rising channel. Both oscillators are declining and with negative MACD divergence we are likely to see dollar weakness ahead.

However, the 3 month daily chart illustrates dollar consolidation at the bottom edge of the expanding triangle plus oscillators that appear to be bottoming, which suggests still further short term dollar strength before weakness.

Japanese Yen

The dollar has strengthened against the Yen for 4 weeks now with a breakout through the top of the small declining channel. This is still only at the centreline of the large declining channel though, reflecting strong Yen performance earlier. Dollar strength is much the result of negative MACD divergence but the oscillators are reflecting overbought conditions which will assist dollar weakness ahead.

US Treasuries

The US Treasury countertrend rally looks complete with determined breakouts up from support. The breakout through 50-Dema is being tested and there could still be further slippage, but an eventual increase to 1.9% yield through the resistance zone will confirm that a bottom has been reached. The global sovereign treasury 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 as well as a few more US Fed rate cuts in trying to fend off recession. With this fundamental background it is difficult to understand how the US Treasury 10 year yield could possibly have bottomed.

The US Treasury yield curve has turned down again towards inversion below 1.00. There is obviously much consternation in America concerning the approach of recession, and this is reflecting in the yield curve which, at inversion below 1.00, reflects Treasury yield on long term 10 year below short term 2 year.

Gold

The gold price as this is written is about $1500 and has been as low as $1480 in spending most of today below $1500. But the gold price reflected in the charts is $1515.80 because of the ‘Stockcharts’ data the charts are based on. This causes a somewhat irritating dysfunction in not only the metals charts but also the miner charts.@#$%

Long term gold has turned down from major resistance, and indicates the start of the next leg down in the gold bear market which is likely to witness prices below the Dec 2015 low before true bottom is reached and the eventual start of the next gold bull market. There are a number of support levels (especially $1383) to the gold price and these will of course provide temporary price improvements as they are triggered.

The start of the gold downturn meets some support, but the next wave down should breach $1490 to test the major support zone. Both oscillators are turning down from the top of their range in support of lower prices.

The daily 12 month chart illustrates the price drop from the peak as well as declining to the support level from where a small rally activated. There is a whole range of intermediate support levels to the bottom of the support zone at which $1383 is likely to provide strong support for a meaningful rally.

The 3-month daily chart illustrates the downturn towards support with $1490 at the entry level and $1383 at the bottom. 50-Dema is at $1483 just below the support entry level and this may provide additional support, just as 200-Dema is just below 1383 which will no doubt provide additional support to a meaningful rally.

South African Rand

The dollar /ZAR currency pair is consolidating between support and resistance, after recent Rand strength in closing below both 10- and 50-Dema. The price consolidation is on the centreline of the rising channel, indicating a slow drift towards Rand weakness, but some dollar weakness is forecast instead.

HUI / Gold Ratio

The ratio has successive breakouts from the rising wedge and H&S pattern as miners increasingly underperform gold. This is in line with the negative MACD divergence but both oscillators are oversold indicating a ratio increase ahead.

GDX US miners ETF

Similar commentary to the HUI/Gold ratio with GDX indicating a bearish negative bias as the trend change develops. The breakout form the rising wedge is followed by developing H&S pattern which could activate soon. But both oscillators are oversold indicating a price increase ahead first.

GDX Junior Gold ETF

GDX Juniors have an identical commentary to the GDX indicating a bearish negative bias as the trend change develops. The breakout form the rising wedge is followed by developing H&S pattern which could activate soon. But both oscillators are oversold indicating a price increase ahead first.

Dust US Miners Bear Index

The US Miners Bear index, as the inverse of GDX, is similar but in reverse direction. A bottom is in development with the bias changing to up as the trend change develops. There is now potential for a thrust up into resistance to confirm the bottom, which is in support of lower US miner prices.

Silver

Long term silver turned down within the confines of the rising wedge in meeting some support. But the next wave down should penetrate $17.50 with both oscillators overbought and turning down.

The daily 12-month chart illustrates penetration of the bear flag which should propel price downwards. The next decline could be strong in penetrating $17.50 and possibly $16.80. Both oscillators seem to have space to decline further in support.

Gold : Silver Ratio

The gold / silver ratio continues to bounce around with increased volatility, typical of a trend change. There is a net increase in the ratio which means gold is again assuming a leadership role again. Both oscillators have more space to increase further in support of an increasing ratio which is negative for the whole precious metals complex.

General Equities
US equities continue to remain elevated as they continue to development of a major topping pattern that is leading to the next global systemic crisis and market collapse. Using the Dow Jones Industrial Average as a proxy for US equities it can be seen that there are extremely interesting elements in the wave structure as it develops. These are discussed in more detail in the body copy, but can be grouped basically into 2 (two) outcomes:
• Strong decline now leading into strong recovery into 2020 to new highs to coincide with US presidential elections in Nov 2020, before the final market collapse begins;
• Continued advance now to new highs, invalidating the Elliott Wave expanding triangle pattern, before the final market collapse begins in 2019;

These two options are being watched carefully to verify outcomes as soon as possible.

Consider the chart below which includes the two options.

Option 1 (Red) Could complete the pattern (3)(4)(5) into the start of major collapse in 2021.
Option 2 (Blue) Could rise to a new high in 2019 into the start of major collapse in 2019.

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