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Midweek Market 28 Nov 2019

Nov 28th, 2019

Executive summary

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. Using the Dow Jones Industrial Average as a proxy for global equities this asset bubble continues to exhausted new highs in the final stage of the rally. This has been accompanied by numerous sentiment and momentum indicators signalling the end of the rally and therefore by all structural criteria the start of the next bear phase is imminent.

US Treasury yields have started to increase and world bond markets are resuming the long term collapse which started in mid-2016. This certainly provides a defining moment with titanic forces (Treasury yields increasing) against supposedly immovable objects (Government and central banks cutting rates) acting in opposite directions.

The US$ has all but completed a retracement rally and 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, and the whole precious metals complex is set to decline further after key breaks below trigger levels.

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. It has, once again, received strong support from the 50-week moving average (red) and has also advanced above the 10-week moving average. Despite this, the dollar is set to resume a weakening phase which will eventually take it down towards the support zone. Negative divergence remains evident and this will provide much energy to breach 50-Wema and break out of the rising wedge into further weakness.

The daily 12 month chart illustrates the current dollar strength which has in fact broken up through the diagonal trendline into resistance. But we are close to a reversal and resumption of declines, which will require breaking through moving averages before testing support much further down.

The short term 3 month daily chart provides a closer view of the breakouts to strength and testing resistance, as the chart develops into a bear flag. The dollar advanced for 6 weeks into the breakouts which will require major reversal power to disengage the upward momentum.

Japanese Yen

Recent dollar strength is evident in the currency pair advancing towards resistance in a bear flag. This too will require major reversal power to disengage the upward momentum as some negative divergence energy plus the bear flag engage the necessary force. This signals eventual Yen strength / dollar weakness, 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. But weakness is increasing with 10-Dema (blue) virtually equal to 50-Dema (red) and a potential negative crossover. Confirmation now requires yield to increase to possibly both 1.9% and 1.94% before advancing further up. 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 (Treasury yields increasing) against supposedly immovable objects (Government and central banks cutting rates) acting in opposite directions.

Gold

Long term gold continues to decline slowly after key levels were breached on the downside. Gold is forecast to decline 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 which is likely to see gold eventually testing the $1383 level. This level is equally likely to provide energy to significant reversal activity.

Gold declines again to establish a mini-double bottom at the key support level of $1449. It is set to decline further down into support, possibly down towards $1383. 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 further in the next phase, with the next key level at $1449.

Gold volatility continues to decline and has dropped down into the support zone. This illustrates 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.

South African Rand

The Rand continues to weaken slightly within the rising channel. But a large topping pattern (circle) could activate into Rand strength provided by dollar weakness (as forecast).

HUI / Gold Ratio

The metal miners charts epitomise the continued strength of miners against a weakening metals background. This therefore presents severe reversal potential once gold breaks down. Development of the large topping pattern could prove extremely bearish for miners soon.

GDX US miners ETF

The GDX commentary is more bearish with a well developed H&S pattern likely to break down and activate soon: This represents even more severe reversal potential once gold breaks down.

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

Silver

Long term silver continues to decline slowly after key levels were breached on the downside. Silver is forecast to decline further in the next period, and 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 to the support zone which extends down to $15.70. Silver has touched and bounced up off the 200-week moving average (green) which it needs to breach decisively if it is eventually to test $15.70. 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 negative bias of the chart, and the late penetration up through 10-Dema. Despite current strength Silver is likely to decline further in the next phase.

The earlier bullish attitude of silver miners has turned bearish with a breakout through the diagonal trendline and a decline down to support having breached 50-Dema decisively. This breakout promises lower prices and a potential test of 200-Dema (green)

Gold : Silver Ratio

The gold / silver ratio closed lower this week at 85.65, reflecting the slight increase in silver outperformance of gold. There is a continued sideways drift into the triangle apex which will break either up or down. An upward break is negative for metal prices and a downward break is positive. The slight drift in the chart does appear to be upward at this stage.

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. Using the Dow Jones Industrial Average as a proxy for global equities this asset bubble continues to exhausted new highs in the final stage of the rally.

This is evident in the Dow one year chart indicating a break below 27 680 should finally confirm termination of the rally. This is, and has been for a while now, accompanied by numerous sentiment and momentum indicators signalling the end of the rally, including diminishing advance / decline readings, extreme investor sentiment and complacency, which are typical of the start of major bear markets.

Famous Elliott Wave type analyses include the expanding triangle illustrated above, which has repeatedly signalled the end of earlier bull markets. This chart provides a more detailed view of the topping pattern and how it unfolds in such a circumstance, together with normally powerful negative divergence. covering the 2 year period which is providing much of the energy for the imminent collapse.

This pattern is estimated to unfold in a severe collapse from D to E followed by recovery in 2020 in completing the (3)(4)(5) pattern to the start of a major systemic collapse that will be larger and more powerful than anything the world has witnessed before.

An important aspect of this is the nature of the collapse from D to E. Because, if it is similar and rapid like the decline in Dec 2018 (from B to C), then the program will unfold as described (red in the chart above). But if it is not, and the decline from D to E is slower in an Elliott Wave impulsive structure (blue in the chart above), then the final systemic collapse will unfold much earlier during 2020.

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