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Midweek Market 31 Oct 2019

Oct 31st, 2019 No comments

Executive summary

US equities seem very close to the start of a significant decline. Using the Dow Jones Ind Ave as a proxy for US equities (and indeed global equities) the chart structure indicates lack of breadth and volume plus the usual high level of investor euphoria, all pointing towards an advance that is close to termination. The plethora of inter-market non-confirmations continue which add significantly to this view.

The US$ is weakening with reciprocating strength mainly in the Euro and British Pound, and precious metals and miners remain becalmed and stuck within higher breakout and lower breakdown levels. More time is required to identify whether gold and silver will perhaps breakout to new highs before the inevitable decline to much lower levels.

The US Fed cut the rate again yesterday in an attempt to reinvigorate the economy and prevent the looming recession, having also started the next round of QE during the previous week. The Process of QE includes ‘printing money’ by buying Treasury bonds, and this has the effect of increasing bond values which then have correspondingly lower yields. This is the mechanism central banks use to reduce interest rates to zero and negative in order to reduce servicing costs of ever higher levels of debt. But in spite of this, the US Treasury countertrend rally seems to have terminated and yields are increasing. It looks like this will be validated within the next month or two, and if interest rates are now increasing again this will exert unbelievable pressure on world economies as the global recession draws nearer.

US Dollar

The US$ is in long term decline but has been in 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 5 year weekly chart illustrates the steady dollar advance since the start of 2018 within the bearish rising wedge formation. But the dollar has weakened in the tail of the pattern as it declines to test the bottom of the rising wedge under the force of negative divergence. It has gained some strength from the 50-Week moving average (red) with a slight bounce which should prove temporary.

The daily 12 month chart illustrates the temporary support off the 200-day moving average (green) as the dollar tests the bottom of the expanding triangle with a bearish-looking candle formation. The US Fed rate cut yesterday should propel further weakness in the dollar.

The short term 3 month daily chart provides a closer view of the dollar decline from the breakout which is now ready to resume further declines.

Japanese Yen

The dollar/Yen currency pair continues to hold its strength with Yen weakness exceeding dollar weakness, as price continues to edge up into the bear flag formation. It closed yesterday on a negative candle at a confluence with the 200-day moving average which may spark a reversal, all within the continued down-sloping declining channel..

US Treasuries

The US Treasury countertrend rally completion is close to confirmation with the chart now indicating a potential turnaround more clearly: Yield has a more definite breakout from the declining channel, and 10-Dema (blue) has a more definite cross-over 50-Dema (red). Yield still needs to increase beyond 1.9% into resistance, but a small correction is delaying this until later. The next period is critical in clarifying whether this is now the defining moment of the US Treasury market resuming the long term collapse which started in mid-2016 and which has been interrupted by central bank QE and the process of ‘printing money’ by means of buying bonds which has artificially increased prices and depressed yield.

Gold

Long term gold is still turned down from peak overbought levels and record volumes after meeting strong resistance from 2011 / 2012. The process has been somewhat ‘becalmed’ with as yet no clear indication of whether gold is to decline to test support or whether it is first to advance towards a new high before declining. More time is required to clarify this, but nevertheless gold is still expected to decline severely to much lower levels below those of Dec 2015 before the start of the next gold bull market.

Gold is mostly quoted in US$, but can of course be quoted in any currency. It is interesting to observe the long term gold chart quoted in Euros, which illustrates that price has in fact exceeded the previous peak in 2011. Equally, gold in Euros is also expected to still decline severely to much lower levels below those of Dec 2014 before the start of the next gold bull market in Euros.

The weekly 5 year chart indicates $Gold is declining to test the 1st support zone which should see price drop towards $1383 eventually. However, the pennant formation is a continuation pattern which suggests higher prices first, even perhaps to a new high. All the moving averages are pointing up, but price is still in the upper regions of the rising channel which presupposes lower prices from here with support from both oscillators moving down.

The daily 12 month chart illustrates development of the topping pattern within a bull flag with potential price movements either up or down. More time is required to clarify whether the next thrust is up or down, and key levels to be breached are indicated on the chart as $1526 (to break up) and $1459 (to break down). Price is currently at a confluence with the 50-day moving average (red) with the 200-day moving average much lower down in the support zone.

The 3-month daily chart illustrates in more detail the formation of the topping pattern and bull flag with potential price movement either way. Key breakout levels are indicated at $1526/$1536 (to break up) and $1465/$1459 (to break down).

South African Rand

The Rand continues to drift weaker within the rising channel pattern, with a sharp decline yesterday (despite dollar weakness) caused by statements from the Reserve Bank Governor and the pending rating from Moodys. Further dollar weakness should reverse this trend, but politics is the overriding driver.

HUI / Gold Ratio

The metal miners charts epitomise the ‘becalmed’ nature of markets at present with numerous conflicting patterns in the HUI / Gold ratio indicating indecision. The H&S patterns have not activated, with the expanding triangle, rising wedge, and reducing wedge patterns nullifying each other. Both oscillators are rising to just above neutral and, as with the metals, more time is required to clarify chart direction.

The long term 10 year chart illustrates the large consolidation at the 200-week moving average (green) reflecting the stalled metals market.

GDX US miners ETF

Similar commentary applies to the GDX chart, as well as the GDX Juniors, XAU, and inverse Dust (charts not shown). The topping pattern is held back by the stalled metals market, with the developing H&S still dormant.

The long term 10 year GDX is declining from resistance at a 3-year double top and 6-year triple top in a large consolidation reflecting the stalled gold market. Although this is well above the 200-week moving average (green) which has just been crossed by the 50-week moving average (red) in a bullish ‘gold cross’. More time is required to clarify chart direction from here.

Silver

Long term silver commentary is in essence similar to commentary for gold, except silver is more extreme with the decline from 2011 nearly double that of gold. Long term silver is still turned down from peak overbought levels and record volumes after meeting strong resistance from 2011 / 2012. But the silver decline has actually stalled although with as yet no clear indication of whether silver is to decline to test support or whether it is first to advance towards a new high before declining. More time is required to clarify this, but nevertheless silver is still expected to decline severely to much lower levels below those of Dec 2015 before the start of the next silver bull market.

The weekly 5 year chart indicates the Silver decline is losing momentum into a pennant formation which indicates a new high is still possible (being a continuation pattern). All the moving averages are pointing up with the 200-week moving average still well below which suggests higher prices first, even perhaps to a new high.

The daily 12 month chart illustrates development of the topping pattern within a bull flag with potential price movements either up or down. More time is required to clarify whether the next thrust is up or down, and key levels to be breached are indicated on the chart as $18.78 (to break up) and $16.87 (to break down). Price is currently at a confluence with the 10-day (blue) and 50-day (red) moving averages with the 200-day moving average (green) much lower down in the support zone. Volumes are declining sharply in support of lower prices.

The 3-month daily chart illustrates in more detail the formation of the topping pattern and bull flag with potential price movement either way. Key breakout levels are indicated at $18.78 (to break up) and $16.87 (to break down).

Silver miners exhibit the same bullish and bearish symptoms as silver itself, and the key level of $27.40 needs to be penetrated on the downside to prevent the bull flag from activating price to new highs.

Gold : Silver Ratio

The gold / silver ratio closed much lower this week at 83.77, reflecting recent increased silver outperformance of gold and also the development of a changed chart structure in a downward sloping expanding triangle that promises more positive precious metals performance. All the moving averages are now down-sloping, above the ratio, including a the 50-day (red) crossover of the 200-day (green) in a positive ‘gold cross’.

General Equities

The Dow Jones 12 month daily chart illustrates the price rally during October which may still go higher but is very close to rally termination with declining energy levels by all structural criteria. This is the prelude to unfolding the basically 2 (two) outcomes developing out of the massive topping pattern of the last two years which is now likely to start a serious decline phase:
• 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 (marked in red on the chart) – now more likely;
• Continued advance now to new highs, invalidating the Elliott Wave expanding triangle pattern, before the final market collapse begins in 2019 (marked in blue on the chart) – now less likely;
Consider the chart below which includes the two options.

It seems option 1 (red) is unfolding and more likely, and option 2 (blue) less likely.

Option 1 (red) Decline from D to E to complete (3)(4)(5) before the start of the final market collapse probably at the start of 2021.

Option 2 (blue) Penetrate up through the top of the expanding triangle before the start of the final market collapse in 2019.

In spite of this, we need still to identify the chart structures as the future begins to unfold. Consider the chart below:

If option 1 (red) is playing out, it needs to decline to E now in a replica ABC format (similar to the end of 2018 decline), to be followed by an impulse (1-5) wave count to a new high in 2020 before the final collapse occurs.

But if the decline to E is in fact an impulse (1-5) wave count (blue), then it is likely that the top of the market was in fact Sep 2019 and that the final market collapse is already happening.

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Midweek Market 24 Oct 2019

Oct 24th, 2019 No comments

Executive summary

Markets have become ‘becalmed’ and there is an eerie silence out there, except for currencies: The US$ is weakening with reciprocating strength mainly in the Euro and British Pound. With one or two exceptions, global equities, metals, miners, and Treasuries are where they were a month ago.

The next US QE phase has started, resulting in the weaker dollar and the almost certainty of a US rate cut at the next Fed meeting. So, MMT (Modern Monetary Theory) is again starting to gain momentum in a desperate effort to stall the approach of recession and the inevitable market collapse. But MMT today is in fact the very reason why the next collapse will dwarf any previous collapses in history, because of the collapse in currency values and negative interest rates threatening the sovereign bond market which is traditionally regarded as risk free.

US Dollar

The US$ is in long term decline but has been in 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 5 year weekly chart illustrates the steady dollar advance since the start of 2018 within the bearish rising wedge formation. But the dollar is now weakening in the tail of the pattern as it declines to the bottom of the rising wedge under the force of negative divergence. It is now at a confluence with 50-Week moving average (red) which is acting as strong temporary support.

The daily 12 month chart illustrates the breakout through the bottom of the expanding triangle which propelled the dollar into earlier support down to the confluence with the 200-day moving average (green) which provided strong temporary support in a small rebound.

The short term 3 month daily chart provides a closer view of the dollar breakout down to the confluence with the 200-day moving average (green) providing short temporary support.

Japanese Yen

The dollar/Yen currency pair continues to strengthen into the bear flag as it holds strength with Yen weakness exceeding dollar weakness, as it meets the 200-day moving average (green) which should supply strong resistance. The chart is likely to reverse in due course when the bear flag activates into Yen strength and dollar weakness which should continue the negative bias in the large declining channel.

US Treasuries

The US Treasury countertrend rally completion is close to confirmation with the chart now indicating a potential turnaround more clearly . Yield has a breakout from the declining channel, and 10-Dema (blue) has a cross-over 50-Dema (red) for the first time in 14 months. Yield still needs to increase beyond 1.9% into resistance, but both oscillators are showing strength within respective rising channels.

Gold

Long term gold is still turned down from peak overbought levels and record volumes after meeting strong resistance from 2011 / 2012. Despite short term gyrations gold is initially expected to correct down towards the $1380 level, which is described by many as the greatest buying opportunity of a lifetime. The multi-year basing pattern in the support zone (red) is certainly a powerful propellant for much higher prices, but resistance in the 2011-2013 period will be powerful resistance indeed before penetration is achieved, and the next gold bull market accelerates ahead.

There are numerous arguments for and against gold declining or advancing from here, and some of these are dealt with in more detail later in the document. But either way, gold is still expected to decline to much lower levels below those of Dec 2015.

The weekly 5 year chart indicates Gold is declining to test the 1st support zone which should see price drop towards $1383 eventually. However, the pennant formation is a continuation pattern which suggests higher prices first, even perhaps to a new high. All the moving averages are pointing up, but price is still in the upper regions of the rising channel which presupposes lower prices from here with support from both oscillators moving down.

The daily 12 month chart illustrates development of the topping pattern within a bull flag with potential price movements either up or down. Key levels are indicated on the chart at $1459 and $1526, with volumes declining and both oscillators drifting lower.

The 3-month daily chart illustrates in more detail the formation of the topping pattern and bull flag with potential price movement either way. More time is required to identify which of the key levels are penetrated first.

The gold volatility index chart illustrates gold investors’ are losing interest with a clear flat to down bias over the recent 5 months.

South African Rand

The Rand continues to drift weaker within the rising channel pattern, but with strength during October to coincide the recent dollar weakness phase. This trend is forecast to continue at least over the next short term period. which should test further into the support zone.

HUI / Gold Ratio

The metal miners charts epitomise the ‘becalmed’ nature of markets at present with numerous conflicting patterns in the HUI / Gold ratio indicating indecision. The H&S patterns have not activated, with the expanding triangle, rising wedge, and reducing wedge patterns nullifying each other. Both oscillators are drifting lower which could perhaps shift the balance of power towards lower price (rather than higher).

GDX US miners ETF

Similar commentary applies to the GDX chart, as well as the GDX Juniors and XAU charts (not shown). GDX actually produced 2 (two) failed H&S activations.

Dust US Miners Bear Index

The US Miners Bear index, as the inverse of GDX, is similar but in reverse direction and perhaps not as accentuated. The bottoming pattern is changing to up bias but price has yet to breakout. There are 3 consecutive breakouts of 3 consecutive reducing wedges, but still no clear breakout to test resistance.

Silver

Long term silver commentary is in essence similar to commentary for gold, except silver is more extreme with the decline from 2011 nearly double that of gold. But, as with gold, despite short term gyrations silver is initially expected to correct down towards the $16.87 level and much lower levels beyond that.

As with gold, there are numerous arguments for and against silver declining or advancing from here, and some of these are dealt with in more detail later in the document. But either way, silver is still expected to decline to much lower levels than those of Dec 2015 at $13.80.

The weekly 5 year chart indicates Silver is declining to test support at $16.87 which should see price drop towards $15.70 eventually. However, the pennant formation is a continuation pattern which suggests higher prices first, even perhaps to a new high. All the moving averages are pointing up but both oscillators are moving down in support of lower silver prices.

The top pattern is preparing to break down to lower levels. But, as with gold and miners, a clear bull flag is evident and failure to penetrate $16.87 will activate the bull flag to new highs. Volumes are declining sharply in support of lower prices.

The 3-month daily chart illustrates in more detail the formation of the topping pattern and bull flag with potential price movement either way. More time is required to identify which of the key levels are penetrated first.

Silver miners exhibit the same bullish and bearish symptoms as silver itself, and the key level of $27.45 needs to be penetrated on the downside to prevent the bull flag from activating price to new highs.

Gold : Silver Ratio

The gold / silver ratio closed slightly lower this week at 85.08, indicating a slight drop in gold outperformance of silver which is positive for precious metals. But the up and down performance each week only testifies to the ‘becalmed’ nature of the markets. Therefore gold’s overall leadership role continues which maintains the slight negative impact on metal prices, for the time being.

General Equities

The Dow Jones 12 month daily chart illustrates the price rally during October which could now move either way. This is a prelude to unfolding the basically 2 (two) outcomes developing out of the massive topping pattern of the last two years, whether moving to a new high now or not:
• 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 (marked in red on the chart);
• Continued advance now to new highs, invalidating the Elliott Wave expanding triangle pattern, before the final market collapse begins in 2019 (marked in blue on the chart);

Because of the Oct rally it is now not obvious which of these 2 (two) options is unfolding.

Consider the chart below which includes the two options.

Neither option is unfolding at the moment and more time is required to forecast which, more accurately. Key elements include whether the rally does not achieve a new high (option red), or whether it achieves a new high and new position for D but still within the expanding triangle (also option red), or whether it achieves a new high beyond the expanding triangle (option blue).

Option 1 (red) Decline from D to E to complete (3)(4)(5) before the start of the final market collapse probably at the start of 2021.

Option 2 (blue) Penetrate up through the top of the expanding triangle before the start of the final market collapse in 2019.

Once we identify which option is unfolding, we nevertheless need to still verify the chart structure to make doubly sure that this option is in fact playing out. Consider the chart below:

If option 1 (red) is playing out, it needs to decline to E now in a replica ABC format (similar to the end of 2018 decline), to be followed by an impulse (1-5) wave count to a new high in 2020.

But if the decline to E is in fact an impulse (1-5) wave count (blue), then it is likely that the top of the market was in fact Sep 2019 and that the final market collapse is already happening.

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Midweek Market 17 Oct 2019

Oct 17th, 2019 No comments

Executive summary

The US Fed announced last week its next QE phase to start Tuesday this week (15th Oct) in a program of buying Treasury bills to the value of $60 billion per month until the 2nd quarter of 2020: That could exceed $500 billion. It has also tried to disguise this balance sheet expansion for some reason by stating it not to be QE but rather only “repo market interventions“ which will boost liquidity in the banking system to prevent recurrence of the recent ‘repo failures’ in New York.

The complaint that the current precarious position faced by major economies is due to a shortage of money is untrue. The problem is actually escalating expenditures. The response to any shortage as we saw recently with the New York ‘repo failures’ is simply to issue more money. But that is no solution, it only makes the eventual crisis worse.

US fiat money quantity in circulation and held in reserve on the US Fed’s balance sheet is about $16 trillion. This grew from 1960 at a compound growth rate of 5.86% up to the global financial crisis in 2008. After that during the massive monetary expansion (which we call QE) it grew at a much higher compound growth rate and is now $5 trillion more than it would have been without QE at a continued growth rate of 5.86%. The apparent money shortage is because debt creation to fund current expenditure is spiralling out of control.

This all points to the next (and third) US rate cut for 2019.


The US$ has started to decline since the start of this month, in anticipation of and in sympathy with the next round of US QE. So too has US equities started to increase for the same reason as the myth of prosperity due to monetary expansion lives on.

The US Treasury market is starting to behave as if the end of the countertrend rally is in, which means resumption of the long term collapse in US Treasuries with corresponding increases in yield. It will be fascinating to observe the impact on yield of the new round of QE.

Precious metals appear to be turning down as the bear market begins to manifest. This is supported by potential and actual break downs in US miners as charts begin to look ominous. But there are contrary theories suggesting that a final rally back up to new highs is possible.

US Dollar

The US$ is in long term decline but has been in 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 5 year weekly chart illustrates the steady dollar advance since the start of 2018, within the bearish rising wedge formation, which is now close to completion at the apex. There is the start of minor weakness in the tail of the pattern together with the still active negative divergence.

The daily 12 month chart illustrates the breakout through the bottom of the expanding triangle as the dollar index starts a decline phase. The breakout takes the dollar decisively through 50-Dema to the top of the next support zone immediately below.

The short term 3 month daily chart provides a closer view of the dollar breakout down to the next support level. The start of the decline phase with clear lower lows and lower highs is also energised by the negative divergence which is finally kicking in.

Japanese Yen

The dollar/Yen currency pair has strengthened this week as Yen weakness exceeds dollar weakness. Breakout through the top of the small declining channel has taken price to the resistance zone as well as meeting additional resistance from 200-Dema (green). This is all likely to move price lower and to continue with the generally negative bias in the chart.

US Treasuries

The US Treasury countertrend rally completion still seeks confirmation. Yield has started a sequence of higher high and higher low, but this may have stalled for now partly from normal investor behaviour and partly from impact of the new round of US QE. Yield needs to break up through the declining channel and exceed 1.9% before testing resistance.

Gold

Long term gold turned down from peak overbought levels and record volumes after advancing to $1557 and meeting strong resistance from 2011 / 2012. Despite short term gyrations gold is initially expected to correct down towards the $1380 level, which is described by many as the greatest buying opportunity of a lifetime. The multi-year basing pattern in the support zone (red) is certainly a powerful propellant for much higher prices, but resistance in the 2011-2013 period will be powerful resistance indeed before penetration is achieved, and the next gold bull market accelerates ahead.

There are numerous arguments for and against the next gold bull market having already started, and most are for, few are against. Those for have many obvious reasons, and those against have few. One powerful reason against is that gold has still not nearly hit bottom yet, because to do so gold must be the cause of great despair and financial loss: When confidence is totally lost and it becomes forgotten, dispensed with, and hated. This could still see gold at levels of $1000 – $900.

Gold is declining to test the 1st support zone which should see price drop towards $1383. Both oscillators are moving down from overbought levels in sympathy with eventual lower gold prices.

The daily 12 month chart illustrates development of the topping pattern which has formed to promote further potential price declines. The key support level is $1465 below which further declines will occur, but the pattern also resembles a bull flag and if this level is not breached then it could propel gold to new highs.

The 3-month daily chart illustrates in more detail the formation of the topping pattern which includes a sequence of lower highs and lower lows in a declining channel, as well as the key $1465 level at the top of the support zone. Failure to penetrate down through $1465 might activate the bull flag to new highs.

South African Rand

The Rand continues to drift weaker within the rising channel pattern. Much depends on dollar movement, and a weaker dollar will strengthen the Rand and, like gold, may activate the bull flag towards a stronger Rand.

HUI / Gold Ratio

The ratio top pattern continues to develop as it prepares to break down and activate the H&S pattern, as miners underperform gold and in fact continue to depress the metal price. This has not quite happened yet despite a developing weaker bias which should test support soon. Failure to break down will see the ratio continue to drift up into the rising wedge.

GDX US miners ETF

The GDX topping pattern has a breakout to activate the H&S pattern as well as the rising wedge, although price has moved back up to test. The topping pattern also includes a reducing wedge with a sequence of lower lows and lower highs. The sequence is bearish, the reducing wedge is bullish, and the H&S is bearish, with price at a pivotal point which may move either way. The balance of probability suggests lower prices but failure to break down further could have the opposite effect.

The GDX Juniors and the XAU are virtually identical to the GDX commentary above, indicating this condition applies right across the board.

Dust US Miners Bear Index

The US Miners Bear index, as the inverse of GDX, is similar but in reverse direction and perhaps not as accentuated. The bottoming pattern is changing to up bias but price has yet to breakout. There are 3 consecutive breakouts of 3 consecutive reducing wedges, but still no clear breakout to test resistance.

Silver

Long term silver commentary is in essence similar to commentary for gold, except silver is more extreme with the decline from 2011 nearly double that of gold. But, as with gold, despite short term gyrations silver is initially expected to correct down towards the $16.87 level and much lower levels beyond that. This continuation down in the silver bear market is likely to witness prices below the Dec 2015 low ($1.80) before true bottom is reached and the eventual start of the next silver bull market. There are a number of additional support levels indicated on the chart and these will of course provide temporary price improvements as they are reached.

Silver is declining to test $16.87 support down to $15.70. Both oscillators are dropping in support of lower silver prices.

The top pattern is preparing to break down to lower levels. But, as with gold and miners, a clear bull flag is evident and failure to penetrate $16.87 will activate the bull flag to new highs.

The 3-month daily chart illustrates in more detail the formation of the topping pattern as well as the key $16.87 level at the top of the support zone. A clear bull flag is evident which includes a sequence of lower highs and lower lows which will potentially cause further declines, or activate the bull flag to new highs if $16.87 is not penetrated decisively.

Silver miners exhibit the same bullish and bearish symptoms as silver itself, and the key level of $27.45 needs to be penetrated on the downside to prevent the bull flag from activating price to new highs.

Gold : Silver Ratio

The gold / silver ratio closed slightly higher on the week at 85.73, indicating slight gold outperformance of silver which is negative for the whole precious metals complex. Therefore gold’s leadership role continues which maintains the slight negative impact on metal prices, for the time being.

General Equities

The Dow Jones 12 month daily chart illustrates the price rally during October which is now likely to equal or exceed the previous top, in a potential new triple top. This is a prelude to unfolding the basically 2 (two) outcomes developing out of the massive topping pattern of the last two years:
• 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 (marked in red on the chart);
• Continued advance now to new highs, invalidating the Elliott Wave expanding triangle pattern, before the final market collapse begins in 2019 (marked in blue on the chart);
Because of the Oct rally it is now not obvious which of these 2 (two) options is unfolding.

Consider the chart below which includes the two options.

Neither option is unfolding at the moment and more time is required to forecast which, more accurately. Key elements include whether the rally does not achieve a new high (option red), or whether it achieves a new high and new position for D but still within the expanding triangle (also option red), or whether it achieves a new high beyond the expanding triangle (option blue).

Option 1 (red) Decline from D to E to complete (3)(4)(5) before the start of the final market collapse probably at the start of 2021.

Option 2 (blue) Penetrate up through the top of the expanding triangle before the start of the final market collapse in 2019.

Once we identify which option is unfolding, we nevertheless need to still verify the chart structure to make doubly sure that this option is in fact playing out. Consider the chart below:

If option 1 (red) is playing out, it needs to decline to E now in a replica ABC format (similar to the end of 2018 decline), to be followed by an impulse (1-5) wave count to a new high in 2020.
But if the decline to E is in fact an impulse (1-5) wave count (blue), then it is likely that the top of the market was in fact Sep 2019 and that the final market collapse is already happening.

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Midweek Market 10 Oct 2019

Oct 10th, 2019 No comments

Executive summary

US equities are declining (and by implication world equities) as the structure and performance in the Dow Jones indicates: More detail in the body copy. US Treasuries have all but completed a countertrend rally which will be confirmed within a week or two. This means resumption of the long term collapse in US Treasuries with corresponding increases in yield.

The US$ is in the last throes of a strengthening phase and is soon to start weakening. 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 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.

US Dollar

The US$ is in long term decline but has been in 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 5 year weekly chart illustrates the steady dollar advance since the start of 2018, within the bearish rising wedge formation, which is now close to completion at the apex. This is likely to end in dollar weakness soon, especially with the added negative divergence in both oscillators.

The daily 12 month chart illustrates the accelerated dollar advance in the last 4 months with the added negative divergence evident in the MACD. The advance is within an expanded triangle, all within a rising channel, as it holds the 10-Dema line towards ultimate and likely weakness soon.

The short term 3 month daily chart provides a closer view of the dollar advance as it completes higher highs and higher lows in hugging 10-Dema (blue) and remaining above 50-Dema (red). Confirmation of a top is likely to include penetration down through 50-Dema and a change to lower highs and lower lows: It may be that the first lower high might already be in.

Japanese Yen

The dollar/Yen currency pair has started weakening (dollar weakness / Yen strength) in the last month, with a sequence of lower highs and lower lows within both the small and large declining channels. This may now be the start of the next weakness phase in a chart with overall negative bias.

US Treasuries

The US Treasury countertrend rally is still incomplete as yield in the 10 year US Treasury continues to drop, in an overall declining channel. Yield increased slightly this week to create a higher low, but much more is still needed to confirm a bottom. Confirmation of a bottom would need penetration of the declining channel plus penetration through 1.9% to at least start testing resistance.

Gold

Long term gold turned down from peak overbought levels and record volumes after advancing to $1557 and meeting strong resistance from 2011 / 2012. Despite short term gyrations gold is initially expected to correct down towards the $1380 level, which is described by many as the greatest buying opportunity of a lifetime. The multi-year basing pattern in the support zone (red) is certainly a powerful propellant for much higher prices, but resistance in the 2011-2013 period will be powerful resistance indeed before penetration is achieved, and the next gold bull market accelerates ahead.

There are numerous arguments for and against the next gold bull market having already started, and most are for, few are against. Those for have many obvious reasons, and those against have few. One powerful reason against is that gold has still not nearly hit bottom yet, because to do so gold must be the cause of great despair and financial loss: When confidence is totally lost and it becomes forgotten, dispensed with, and hated. These are ‘socionomic’, affecting the mood of the market, and that stage is probably not reached yet. Some Elliott Wave practitioners (and others) are forecasting gold to still go down towards $1000 – $900.

This leg down in the gold bear market 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 additional support levels indicated on the chart and these will of course provide temporary price improvements as they are reached.

Gold is correcting up after the first wave down and, once complete, the next wave down should test minor support down to the $1383 level. Both oscillators are moving down from overbought levels in sympathy with eventual lower gold prices.



The 3-month daily chart illustrates in more detail the formation of the topping pattern which includes a sequence of lower highs and lower lows in a declining channel, as well as the key $1465 level at the top of the support zone.

South African Rand

The Rand continues to weaken as price drifts within a rising channel pattern. Much depends on dollar movement, but the chart suggests a continuing weakness in the Rand.

HUI / Gold Ratio

The ratio is essentially moving sideways with a strengthening in this last week. However, the price drift up the rising wedge pattern continues, and this has eventual bearish connotations. If price breaks down into support this could trigger a H&S which will then have developed. Both oscillators are drifting with a neutral bias.

GDX US miners ETF

The GDX topping pattern includes a bearish sequence of lower highs and lower lows after the peak, and this could move price further down to activate the H&S which is developing. Both oscillators are at or near to neutral.

The GDX Juniors and the XAU are virtually identical to the GDX commentary above, indicating this condition applies right across the board.

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, but the Dust chart is not as positive as the GDX is negative. The earlier wedge breakout is nevertheless gathering some sort of momentum. Although both oscillators are neutral, the run up in the last 3 months (especially in the MACD) has been strong which suggests this might push through to a more positive bias chart.

Silver

Long term silver commentary is in essence similar to commentary for gold, except silver is more extreme with the decline from 2011 nearly double that of gold. But, as with gold, despite short term gyrations silver is initially expected to correct down towards the $16.93 level and much lower levels beyond that. This continuation down in the silver bear market is likely to witness prices below the Dec 2015 low ($12.70) before true bottom is reached and the eventual start of the next silver bull market. There are a number of additional support levels indicated on the chart and these will of course provide temporary price improvements as they are reached.

The next wave down in silver will test support at $16.93-down to $16.20, and later down to $14.20: The decline will outpace that of gold. Both oscillators are moving down from overbought levels in sympathy with eventual lower silver prices.

The 3-month daily chart illustrates in more detail the formation of the topping pattern as well as the key $16.93 level at the top of the support zone. There is a clear declining channel formation which includes a sequence of lower highs and lower lows which will potentially cause further declines. A key level is $15.92 below which support fails.

Gold : Silver Ratio

The gold / silver ratio closed slightly lower as the oscillations within the rising channel continue. This indicates slight silver outperformance of gold this week, but with the rising channel indicating gold is slowly assuming a leadership role, which is negative for the whole precious metals complex.

General Equities
US equities have started to decline with the structure in the Dow Jones chart now indicating further strong declines, probably into year end 2019. Using the Dow as a proxy for US equities it can be seen that there are basically 2 (two) outcomes developing out of the massive topping pattern of the last two years:
• 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 (marked in red on the chart);
• Continued advance now to new highs, invalidating the Elliott Wave expanding triangle pattern, before the final market collapse begins in 2019 (marked in blue on the chart);
In watching these two options carefully, it appears that the former is in fact happening, and that the latter is not.

Consider the chart below which includes the two options.

Option 1 (red) This pattern is playing out. It will decline towards E to complete (3)(4)(5) before the start of the final market collapse probably at the start of 2021.

Option 2 (blue) This pattern is not playing out, because the Dow is declining now and not rising now. This would have meant a new high in 2019 and the start of the final market collapse in 2019.

Since the Dow is following the Red option, we nevertheless need to still verify the chart structure to make doubly sure that this option is in fact playing out. Consider the chart below:

If option 1 (red) is playing out, it needs to decline to E now in a replica ABC format (similar to the end of 2018 decline), to be followed by an impulse (1-5) wave count to a new high in 2020.

But if the decline to E is in fact an impulse (1-5) wave count (blue), then it is likely that the top of the market was in fact Sep 2019 and that the final market collapse is already happening.

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Midweek Market 3 Oct 2019

Oct 3rd, 2019 No comments

Executive summary

The US Fed cut the rate in Sep 2019, but the US economy is indicating a lot more is needed in yet lower rates and increased new credit. But rates are already perilously close to zero and the usual leeway is no longer available.

As US recession looms, the news just keeps getting worse:
• Manufacturing decreases to levels last seen in 2008;
• Treasury yields weaken as recession fears increase;
• Gross national debt jumps by $1.2 trillion to $22.7 trillion;
• Growth keeps declining;
• Student loan debt now totals $1.6 trillion in 2019;
• A Repo ‘squeeze’ resulted when banks stopped lending to each other and the US Fed had to step in to ease liquidity;
• Mid-west economies are faltering and begin spreading pain nationwide;
• Equities finally respond with the Dow Jones dropping 1000 points yesterday;

The US economy, and its president, requires even lower rates and increased money supply to avoid financial and monetary arrest. Are we now to witness the US join the EU and Japan in a coordinated round of aggressive easing, possibly joined by the rest of the world.

US Dollar

The long term monthly US dollar index chart edged down this week from highs at the rising wedge apex. Although both oscillators are neutral they reflect the negative divergence which is now likely to weaken the dollar in the next phase.

The daily 12 month chart illustrates the dollar starting to weaken although still well within both rising patterns. Negative divergence is evident in the MACD and this is likely to continue to weaken the dollar.

The 3 month daily chart provides a closer view of the dollar turning down after 6 consecutive closes above 10-Dema. The closing candles have long shadows above indicating weakness next, together with the force of negative divergence.

Japanese Yen

The dollar has started weakening against the Yen as it maintains position within both declining channels, and the overall essence of a negative bias chart. This would suggest further Yen strength and dollar weakness.

US Treasuries

The US Treasury countertrend rally is still incomplete as yield in the 10 year US Treasury continues to drop. It is assisted by the fear of US recession which in turn provides the US Fed with cause to cut the rate again as yield declines. Yield needs to increase and penetrate the top down-sloping trendline before completion of the countertrend rally can be confirmed.

Gold

Long term gold has turned down from peak overbought levels, but is rising again in a correction which, once completed, will see gold drop to new lows. The correction is likely to increase further before again resuming the decline which will test minor support down to $1383 before serious support levels are reached further down. $1383 is likely to provide a serious platform for additional potential upward corrections.


This leg down in the gold bear market 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 additional support levels indicated on the chart and these will of course provide temporary price improvements as they are reached.

Gold is correcting up after the first wave down and, once complete, the next wave down should test minor support down to the $1383 level. Both oscillators are moving down from overbought levels in sympathy with eventual lower gold prices.

The daily 12 month chart illustrates the topping pattern which has formed to promote further potential price declines. Key support levels are indicated on the chart which will also provide bounce potential.

The 3-month daily chart illustrates in more detail the formation of the topping pattern as well as the key $1465 level at the top of the support zone.

South African Rand

The Rand weakened sharply into earlier resistance, as it closed above 10-Dema on the last 10 consecutive trading days. The RSI is approaching oversold levels as the Rand moves closer to the top trendline in the rising channel, which suggests a reversal soon. If this coincides with a weaker dollar then the support region is likely to be tested, perhaps even down towards 200-Dema (green).

HUI / Gold Ratio

Successive breakouts in the ratio is building toward more breakouts as US miners underperform gold. Criss-cross H&S necklines are about to be breached which is likely to test the support region below.

GDX US miners ETF

Similar commentary to the HUI/Gold ratio with GDX indicating the start of a bearish negative bias as the trend change develops. The breakout from the rising wedge is followed by a developing H&S pattern which could activate soon. Both oscillators are just below neutral.

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

Silver is correcting up after the first wave down and, once complete, the next wave down should test minor support down to the $15.62 level. Both oscillators are moving down from overbought levels in sympathy with eventual lower silver prices.

The daily 12 month chart illustrates the topping pattern plus the correction up after the first wave down. The chart structure promotes further potential price declines to test support down to the $15.90 level. Both oscillators are still trending down in support of lower silver.

The 3-month daily chart illustrates in more detail the formation of the topping pattern as well as the key $16.90 level at the top of the support zone.

Gold : Silver Ratio

The gold / silver ratio continues to bounce around within a rising channel which indicates that gold is slowly assuming the leadership role, which is negative for the whole precious metals complex.

General Equities
US equities have started to decline with the Dow Jones dropping by 1000 points yesterday, and with every indication of further declines. Using the Dow as a proxy for US equities it can be seen that there are basically 2 (two) outcomes developing out of the massive topping pattern of the last two years:
• 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 (marked in red on the chart);
• Continued advance now to new highs, invalidating the Elliott Wave expanding triangle pattern, before the final market collapse begins in 2019 (marked in blue on the chart);
In watching these two options carefully, it appears that the former is in fact happening, and that the latter is not.

Consider the chart below which includes the two options.

Option 1 (red) This pattern is playing out. It will decline towards E to complete (3)(4)(5) before the start of the final market collapse probably at the start of 2021.

Option 2 (blue) This pattern is not playing out, because the Dow is declining now and not rising now. This would have meant a new high in 2019 and the start of the final market collapse in 2019.

Since the Dow is following the Red option, we nevertheless need to still verify the chart structure to make doubly sure that this option is in fact playing out. Consider the chart below:

If option 1 (red) is playing out, it needs to decline to E now in a replica ABC format (similar to the end of 2018 decline), to be followed by an impulse (1-5) wave count to a new high in 2020.
But if the decline to E is in fact an impulse (1-5) wave count (blue), then it is likely that the top of the market was in fact Sep 2019 and that the final market collapse is already happening.

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