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Midweek Market 14 Nov 2019

Nov 14th, 2019

Executive summary

Market commentary is similar to last week, give or take limited exceptions. US equities continue to ‘drift’ sideways to up with increased lack of energy and breadth, and remain very close to the start of a significant decline.

The US$ is correcting up after recent weakness although it continues to now move sideways with the likely resumption of weakness soon. It is in a multi-month weakening phase which eventually will develop into a multi-year weakening phase. Gold is in a period of moving with the dollar (as opposed to the more normal against) and is also in a multi-month weakening phase despite some very short term strength. Precious metals have recently signalled weakness after key breaks below trigger levels, with becalmed markets in both metals and miners moving sideways for about 2 months.

US Treasury yields are developing a bottoming pattern which indicates the countertrend bond market rally is over with yields beginning to increase. It looks like this will be validated within the next number of weeks, and if interest rates are now increasing again this will exert unbelievable pressure on world economies as the cost of servicing astronomic debt levels spirals in the face of approaching global recession. Also, this probably puts an end to the ability of the US Fed to again cut the rate, which in turn will apply significant pressure to all asset markets – notably the US stock market and indeed global stock markets.

US Dollar

The US$ is in long term decline but has been in a rally since 2008. The dollar and gold (quoted in dollars) have been moving in sync (as opposed to opposite) for about 13 months now, and will presumably do so only for a short while longer if judged by history. Therefore, once they start moving opposite again dollar and gold values will move against each other with low gold if high dollar, and vice versa. But the next period is forecast to see lower dollar and gold values which means they are actually forecast to move in sync for longer than usually occurs historically.

The 5 year weekly chart illustrates the steady dollar advance since the start of 2018 within the bearish rising wedge formation which is starting to be tested in the lower regions. But the dollar is strengthening in the tail of the pattern, supported by the 50-Week moving average (red). Once this is breached it will lead to significant dollar weakness.

The daily 12 month chart illustrates the temporary support off the 200-day moving average (green) as the dollar retraces some of the recent declines. A breach here will lead to weakness and further testing of the support zone.

The short term 3 month daily chart provides a closer view of recent dollar strength having penetrated up through all moving averages. Once the dollar correction completes it is likely to resume further declines.

Japanese Yen

The dollar/Yen currency pair continues to hold its strength, although weakening in the tail as Yen strength begins to exceed dollar strength. The nearly 4 month long bear flag indicates eventual dollar weakness / Yen strength is likely in due course. all within the continued downward sloping large declining channel in a negative bias chart.

US Treasuries

The US Treasury countertrend rally completion is close to confirmation with the chart indicating that the breakouts are holding: Breakout from the declining channel, 10-Dema crossing over 50-Dema, and yield moving toward breach of 1.9% to test resistance. Both oscillators are in rising channels which reflect the developing chart pattern of higher highs / higher lows from the bottom at the start of Sep 2019. This all portends a turnaround more clearly, but yield still needs to test resistance beyond 1.9% to confirm the US Treasury market is in fact resuming the long term collapse which started in mid-2016. The whole process has been interrupted by central bank QE and artificially depressing interest rates.

Certainly a defining moment with titanic forces against supposedly immovable objects acting in opposite directions.

Gold

Long term gold is still turned down from peak overbought levels and record volumes in a market that required penetration through key levels either up or down, to energise becalmed markets in both metals and miners moving sideways for about 2 months. This has now happened to the downside with gold likely to now start declining further in the next period.

Gold is still forecast to eventually decline severely to much lower levels below those of Dec 2015 before the start of the next gold bull market.

The weekly 5 year chart indicates $Gold has declined into the 1st support zone, with major support starting at $1380. The next phase is likely to see gold eventually testing the $1383 level which is equally likely to provide energy to significant reversal activity.

The daily 12 month chart illustrates the topping pattern break down through the key level of $1459, fleetingly, to start the process of testing support and nullifying the bull flag potential. Price has decisively penetrated the 50-day moving average (red), and should eventually provide reversal potential as price nears the $1383 level or the 200-day moving average (green).

The 3-month daily chart illustrates in more detail the penetration of $1459, and the likelihood of further price declines.

Gold volatility continues to decline, illustrating the increasing loss of investor interest, and both oscillators exhibit a continued 5 month decline which amplifies the trend. This of course may also indicate a reversal any time soon.

South African Rand

The Rand continues to weaken slightly within the rising channel. The trend is obvious, but break down to strength could be provided by dollar weakness, or break up to weakness by SA politics or further economic weakness.

HUI / Gold Ratio

The metal miners charts epitomise the continued strength of miners against a weakening metals background. The opposite of this is therefore more likely to happen in the next period, which portends exaggerated miner weakness against less exaggerated metals weakness.

Also, this chart includes a degree of conflicting patterns with the developing H&S and bear flag more conspicuous suggesting breaks to the downside are probably next.

The long term 10 year chart illustrates the large consolidation at the top edge of the triangle could be a coiled spring to break down once gold resumes its decline. Additional momentum is provided by the 200-week moving average (green) above and once the 50-week moving average (red) is penetrated below the ratio should break down to test support.

GDX US miners ETF

The GDX commentary is more bearish with a breakout through the bottom of last week’s rising wedge and a topping pattern ready to activate H&S after gold completes its rally. The GDX break down potential applies equally to the GDX Juniors, XAU, and inverse Dust (charts not shown).

The long term 10 year GDX is declining from resistance in a large consolidation set to break down after the gold rally completes. The ratio is supported by the 50-Week moving average (red) just below at the start of the support zone, which once penetrated will ensure a thorough testing of support.

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 in a market that required penetration through key levels either up or down, to energise becalmed markets in both metals and miners moving sideways for about 2 months. This has now happened to the downside with silver likely to now start declining further in the next period.

Silver is still forecast to eventually 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 that Silver has declined into the support zone which extends down to $15.70. Silver has touched the 200-week moving average (green) and decisive penetration will eventually see $15.70 tested. This level is equally likely to provide energy to significant reversal activity.

The daily 12 month chart illustrates the topping pattern break down through the key level of $16.87, fleetingly, to start the process of testing support and nullifying the bull flag potential. Price has bounced off the 200-day moving average (green), having decisively penetrated the 50-day moving average (red), and testing support should eventually take price down to $15.90 which will provide some reversal potential.

The 3-month daily chart illustrates in more detail the multiple breakdowns to penetrate $16.87, and the likelihood of further price declines.

The mini-breakout from the bull flag has proved false with price declines that should still see the topping pattern break down further as silver completes its rally. Price is supported by the 50-day moving average (red) and penetration of this should see further price declines to the next key level of $27.40 and the 200-day moving average (green).

Gold : Silver Ratio

The gold / silver ratio closed higher again this week at 86.52, after a penetrating breakout up through the expanding triangle. This reflects gold outperformance of silver which is negative for the whole precious metals complex.

The long term 30 year chart indicates a breakout up through a massive inverted H&S pattern which should still see much higher ratio levels and much lower metals prices.

General Equities

The Dow Jones 12 month daily chart illustrates the price rally since the low of late 2018 and the ever waning momentum as it creeps up yet higher. The Dow rally is now close to termination by all structural criteria as it conveys a compelling bearish picture. This is compatible with the end game in the chart structure we have been postulating.

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 soon 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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