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Midweek Market 21 Nov 2019

Nov 21st, 2019

Executive summary

Three major markets in – Bonds, Gold, and Equities are now beginning to indicate key turning points as they evolve in response to the asset bubbles that have formed in the longest bull market in history from the low point in 2009 after the global financial crisis took the world to the edge of the abyss. Bonds, equities, and indeed most asset classes such as property, fine art, etc., developed into asset bubbles driven by modern monetary theory (MMT) which included money printing in QE programmes, dwarfing everything that went before, that has resulted in ultra-low interest rates down to zero and negative. This has been a failed process that tried to encourage economic growth and has in fact driven currency values on a path towards zero when measured against gold. This toxic cocktail of gross mismanagement by global central banks is about to come apart at the seams in the next systemic crisis which will be more catastrophic than any earlier crisis.

US Treasuries have been in a countertrend rally for a year now, propelled by MMT, having peaked in mid-2016 at the start of a long term bond bear market. US Treasury yields are now finally 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 spiral 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.

The US$ is set to resume its 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, although miners continue to hold price levels despite weaker metals.

US Dollar

The US$ is in long term decline but has been in a rally since 2008. The dollar retreat down from resistance has stalled, although it appears to be set to resume its decline soon. By a number of different yardsticks the long term dollar decline is likely to take the index into the low 60’s in the next 5 years.

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. Despite recent strength the dollar is beginning to weaken towards the 50-Week moving average (red) which has been providing recent strength. Negative divergence is evident and once the dollar breaches 50-Wema it will lead to significant dollar weakness.

The daily 12 month chart illustrates the temporary support off the 200-day moving average (green) as well as the more recent weakness which is set to resume, potentially testing the support zone.

The short term 3 month daily chart provides a closer view of the negative bias developing in the dollar chart and the potential test of support lower down as declines resume.

Japanese Yen

The dollar/Yen currency pair starts declining as Yen strength exceeds dollar strength and the breakout through the bear flag signals further Yen strength / dollar weakness. This is all within the declining channel which should eventually break up to Yen weakness.

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. Yield appears set to resume its advance up and once 1.9% is breached decisively this will 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 which will eventually provide the structure to the reset of the international monetary system after the existing one collapses.

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 the partial retracement up is set to drop further soon.

The 3-month daily chart illustrates in more detail the penetration of the key level of $1459, and the negative bias of the chart. Gold is likely to breakdown to decline further in the next phase.

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 an unlikely reversal any time soon.

In revisiting the COTS data we can identify that gold is likely to decline further in line with the dilation illustrated in the red circle. This identifies Large Commercials with large short positions and Large Speculators with large long positions. Large Commercials are usually correct and large Speculators are usually incorrect.

South African Rand

The Rand continues to weaken slightly within the rising channel. The trend is obvious, but a breakdown to strength could be provided by dollar weakness activating the large topping pattern.

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 rising wedge more conspicuous suggesting breaks to the downside are probably next.

GDX US miners ETF

The GDX commentary is less bullish with severe reversal potential once the gold rally terminates. Development of the large topping pattern could prove extremely bearish for miners once this activates.

The GDX break down potential applies equally to the GDX Juniors, XAU, and inverse Dust (charts not shown).

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 which, like gold, has finally turned down after becalmed markets in both metals and miners moving sideways for about 2 months. This is now likely to decline 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 and bounced up off 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.

Price has bounced off the 200-day moving average (green), having decisively penetrated the 50-day moving average (red), and the partial retracement up is set to drop further soon to test key support levels at $16.59 and $15.90.

The 3-month daily chart illustrates in more detail the penetration of the key level of $16.87, and the negative bias of the chart. Silver is likely to breakdown to decline further in the next phase.

The relatively bullish chart includes a cautionary topping pattern which will break down after the silver rally terminates. However, price is well supported by the 50-day moving average (red) which must be penetrated if support is to be tested.

In revisiting the COTS data we can identify that silver is likely to decline further in line with the dilation illustrated in the red circle. This identifies Large Commercials with large short positions and Large Speculators with large long positions. Large Commercials are usually correct and large Speculators are usually incorrect.

Gold : Silver Ratio

The gold / silver ratio closed slightly lower this week at 86.13 in continuing to drift sideways into the triangle apex, with an eventual break up or down to follow. The general drift of the chart indicates higher ratios to follow, and a break up is negative for metal prices, and vice versa. A break up reflects gold outperformance of silver which is negative for the whole precious metals complex.

General Equities
Global equities have continued the longest bull market in history from the low point in 2009 after the global financial crisis took the world to the edge of the abyss. This developed into an asset bubble driven by modern monetary theory (MMT) which included money printing in QE programmes, dwarfing everything that went before, that has resulted in ultra-low interest rates down to zero and negative. This has been a failed process that tried to encourage economic growth and has in fact driven currency values on a path towards zero when measured against gold. This toxic cocktail of gross mismanagement by global central banks is about to come apart at the seams in the next systemic crisis which will be more catastrophic than any earlier crisis.

Using the Dow Jones Industrial Average as a proxy for global equities, it can be seen how the bull market has developed into a huge topping pattern over the past 2 years which is forecast to eventually collapse. Certain Elliott Wave practitioners have analysed this expanding triangle structure to evolve into a collapse from D (where we are now) to E, leading up to the final market collapse from (5) that will destroy the international financial and monetary system. This will be the first retooling of the system since Bretton Woods in 1944.

This chart provides a more detailed view of the topping pattern and how it unfolds. There is a strong negative divergence between the Dow and the oscillators covering the 2 year period which is providing much of the energy for the imminent collapse.

The one year chart illustrates the Dow turning down through the 10-day moving average, but more is required to confirm the potential top that has formed.

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