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Midweek Market 23 May 2019

May 23rd, 2019 No comments

Executive summary

Markets are likely to witness increased volatility in the next period of weeks and months which just might become the norm throughout the rest of 2019. Current EU elections and continued Brexit turmoil, plus the deteriorating stance between China and the US will drive initial price volatility. Also the political fervour in the ramp up to the US 2020 presidential election is building to the most hotly contested election in decades.


Markets are increasingly reacting to all this across the spectrum in currencies, stock and bond markets, debt levels and rates, precious metals et al., in attempting to balance capital, risk, and reward.


The US dollar index continues to increase in the short term towards the region of $100.00 which is the prime driver of weaker precious metals and miners. Potential decline in US equities has the major indices reacting in differing ways with differing short term options, as the grind towards the final market collapse edges closer.

US Dollar

The US dollar index continues to advance into the rising wedge and well ahead of the MAs. The chart is positive and looks set to advance higher.

The dollar rally in the barrier triangle pattern is set to clear the Apr high and move towards a level $100.00, provided the red support lines are not violated. Dollar strength is primarily the reaction to market tension and volatility as a perceived safe haven to the threats. From an Elliott Wave point of view the advance will complete the corrective (A)(B)(C) which will complete anywhere between the Apr peak and the region of $100.

The short term 3 month chart illustrates the dollar rising towards the Apr peak after consolidating around 10-Dema. The chart looks positive with all MAs moving up steadily.

It improves perspective to view much longer term charts from time to time. This 40 year weekly chart illustrates the 16 year cycles in dollar value, based on the US presidential election periods every 4 years.


The dollar is in a long term down trend which, if the cycles hold true, is likely to witness dollar value dropping towards the cycle bottom in the low $0.60 late in 2024. This coincides with reciprocal gold strength which will occur at the same moment.

Japanese Yen

The Yen weakened significantly this week in line with the dollar advance as the US$ barrier triangle continues play out to completion. This Yen weakness coincides with recent gold weakness.

US Treasuries

This is a 40 year weekly chart of the benchmark US Treasury 10 year yield, highlighting the bottom formation signalling the end of the 35 year US bond bull market. It includes a powerful inverted dome bottom including a double bottom which is likely to advance yield into the long term bond bear market once the neckline is breached. This will include an initial phase of increasing yield by the depth of the dome towards yield of 6.0%.


There was a false breakout in late 2018, and the current countertrend bond rally (seen in the dangling dogleg since then) needs to complete with a reversal and subsequent breakout through the neckline to confirm everything.

The 5 year weekly chart illustrates the extent of the yield countertrend decline which is all but complete. Both oscillators are in the lower regions of their range and indicate the potential for the needed reversal.

The yet shorter term 1 year chart details the countertrend yield decline and the potential for the upward reversal which seems likely any time soon.

Gold

This is a 50 year chart of the gold : SPX (proxy for the S+P500 index) ratio which illustrates performance of one against the other. The two are opposite in content, value, and investor confidence, in that gold is a hard asset and the S+P500 is an investment based on a fiat-based currency, the dollar. You cannot therefore have peaks / troughs in both at the same time, and a gauge of gold value is improved when the S+P500 is doing badly, and vice versa.


The peaks Red) are the gold peaks in 1980 and 2011 and troughs (blue) are when Nixon de-linked the dollar from gold convertibility in 1971 and the US tech bubble in 2000. The final black circle is now.


The first blue circle in 1971 was the start of the 1st gold bull market and the 2nd blue circle the start of the 2nd gold bull market. The 2 red circles represent the start of the 2 gold bear markets, which follow the end of bull markets.


The black circle will turn blue if the S+P500 collapses and red if gold collapses. The blue moving average is a very long term 200-Wema (equivalent to 800 day moving average) which triggers the bull / bear markets at the cross over. It can be seen in the tail of the graph that gold potential is beginning to develop even before any equity collapse.

This is a 6 year weekly chart of the gold ; 10 Year US bond price ratio which has been constructing a 6 year bottom formation. It will trigger as the ratio breaks through the neckline. The ratio advances as gold rises and the bond value drops, and vice versa. Therefore, as the bond countertrend rally completes, yield will advance and value will drop. Even a casual glance at the chart indicates this is about to occur any time soon.

The gold price 6 month cycle low is in progress which should complete somewhere between $1250-$1210 (red circle). As the US$ index strengthens towards $100.00 and beyond so too will the gold price drop down into its cycle low. The next up cycle may well take gold to the $1500 region later in 2019.

Weekly gold continues decline into the bullish flag pattern which will break up and advance once the dollar completes its barrier cycle advance. The oscillators are still declining with the Slow Stochastice at the bottom of its range.

Daily gold continues its relentless decline into the reducing wedge as a threatening H&S develops. More downside looks likely.

The 3 month chart illustrates gold’s decline this week ending in another break below 200-Dema.

The gold volatility index is flat to continuing down. Investors are not getting excited by events which presupposes more of the same to come.

South African Rand

The South African Rand is moving sideways and looking relatively stable against the dollar, as it develops 2 channels in the chart, one bullish and the other bearish. Price is above the MAs (bearish) and there does not appear to be many other technical reasons for movement either way. Therefore, with the elections completed, movement is likely to be dollar driven and not Rand driven.

HUI / Gold Ratio

US miners continue to grossly underperform weak gold as the ratio completes 25 consecutive closes below 10-Dema. The ratio is oversold but with more gold downside any correction seems unlikely. Both oscillators are bottoming which suggests some kind of a bounce is possible.

GDX US miners ETF

GDX is consolidating (on reduced volume) just above the neckline of a developing H&S pattern, which if triggered is likely to take price much lower. The ETF is at a critical bearish moment with a tipping point close at hand.

DUST US Gold Miners Bear Index

The Dust index is the inverse of GDX nearly exactly. It is also at a critical bullish moment with a tipping point close at hand. If this is triggered it will be very bearish for gold and miners.

Silver

Silver continues to move down into the reducing wedge, breaking down into previous support in a chart with very negative bias.

The 12 month chart illustrates silver dropping further down into the reducing wedge pattern, as silver becomes acutely oversold.

The 3 month chart illustrates the decline accelerating further down into a prolonged reducing wedge. There may be some sort of bounce from here, but unlikely.

Silver Miners

The silver miners carnage continues in a near vertical decline. Like gold miners, this can only be extremely negative for the metals.

Gold : Silver Ratio

The gold / silver ratio continues rising overall within the rising wedge pattern, to close higher at 88.19. This reflects the continued silver underperformance of gold which is negative for the whole precious metals complex, seemingly endlessly.

General Equities

Potential decline in US equities has the major indices reacting in differing ways with differing short term options, as the grind towards the final market collapse edges closer.

The Dow Jones has 2 short term options:

  1. Drop from here by about 20% to a level of 20000 before the end of 2019;
  2. Advance from here to 27000 soon and to drop from there by about 26% to a level of 20000 before the end of 2019;

From there the Dow Jones has 2 mid-term options:
1 To start a major collapse directly from there in early 2020;
2 To first advance from there to 28000 by the end of 2020 and to start a major collapse from there in early 2021;

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Midweek Market 9 May 2019

May 9th, 2019 No comments

Executive summary

Much has been said and written about the impending collapse of markets and in fact even the international monetary system itself. The legacy of debt, deficits, and doom lurks in the background as investor psychology remains vexing because prices keep rising, volatility keeps declining, and extreme sentiment and euphoria remains.

Probably the world’s leading researcher in Elliott Wave theory recently projected equity behaviour based on the Dow Jones Industrial Average, and this commentary explores some of those views in simple terms.


The Dow is estimated to peak in early 2021 in the region of 28250 after various short term gyrations that unfold the wave structures up to that point (indicated in the attached charts). The Grand Supercycle wave structure (started at the beginning of the United States in 1776) will end wave III up at that moment and start the century long wave IV down before eventually completing wave V. So, US equities have approximately another 21 months to grow another 5% before the final market top, beyond which the next financial collapse will envelop the world in something far greater than anything else gone before.

The US dollar index continues to increase in the short term towards the region of $100.00 or above but, once this pattern has completed, the dollar will resume its long term weakening trend.

Precious Metals and miners continue their weakening trend which is not complete, although currently could be in a troublesome rally. This is likely to eventually extend declines before completing the down cycle to coincide with final dollar strength.

US Dollar

The US dollar index continues to increase into the rising wedge although involved in miner retracement at times. The oscillators are rising and price is well ahead of all the MAs and looks set to move higher.

The dollar is in a 2nd consolidation in its rally in the barrier triangle pattern chart, as it also holds above the red support lines. It is likely to continue rising and technically will have completed the pattern once it rises above the April peak just above $98.00. But the rally could be in a more complex wave 3 of (C) which is still likely to catapult the dollar index up to $100.00 or higher, providing the red support lines continue holding. This will complete the corrective (A)(B)(C) before the next impulsive 5 wave down.

The short term 3 month chart illustrates the dollar building a base consolidation for the next advance up above the previous high.

Japanese Yen

The Yen strengthened during the dollar pause to breakout of the expanding wedge formation, but will resume a weakening phase as the US$ barrier triangle plays out to completion. This Yen strength coincides the recent pause in gold’s weakening phase.

US Treasuries

The benchmark US 10 year Treasury yield bottomed at the start of April before launching into an increasing yield phase, which is enduring increased resistance. This is caused principally by the threat of US recession and the onset of more modern monetary theory applied in potential QE later in 2019.

This can be seen in the next chart illustrating the US yield curve.

US Yield Curve

The official yield curve calculated on the 10 year and 2 year has been drifting up but jolted down these last 2 weeks as US recession and trade wars re-surfaced. There is little doubt that global recession is coming (and already here in parts) and that US recession is potentially due later in 2019 or 2020.

Gold

The gold price 6 month cycle low is in progress which should complete somewhere between $1250-$1210 (red circle). As the US$ index strengthens towards $100.00 and beyond so too will the gold price drop down into its cycle low. The next up cycle may well take gold to the $1500 region later in 2019.

Gold continued to decline into the cycle low but is consolidating just above 50-Wema (equivalent of 200 day moving average). The oscillators are mixed and further declines may be delayed slightly.

Despite the delay in the consolidation below the H&S neckline, the gold price is likely to still drop down into the support zone.

The 3 month chart illustrates gold’s consolidation at 200-Dema as the price continues its relentless decline towards lower levels.

South African Rand

The South African Rand strengthened slightly this week to close at 10-Dema. Despite this, the oscillators are mixed which indicates some further dithering ahead, and with more dollar strength in the next period further Rand weakness seems likely again.

HUI / Gold Ratio

The recent multiple breakdowns are turning into lower consolidations as US miners decline ahead of the gold price. Both oscillators are bottoming which might produce a bounce in the ratio. However, it is well below the MAs and looks set to still continue down.

US Miners Matrix

The matrix chart of the HUI Index, GDX ETF, and the Dust Bear Index, still portrays a negative picture with penetrations through the necklines and emergence of a 2nd new neckline. The top two have penetrated 200-Dema and Dust is about to penetrate also. This is not a positive picture and further declines in US miners are expected, which additionally impact negatively on metal prices.

Silver

Silver continues to move down into the reducing wedge, breaking down towards the support zone in a chart with very negative bias. However, the Slow Stochastic is turning up close to the bottom of its range, the MACD is virtually still at its mid-point with much downside still available. Silver could bounce from here.

The 12 month chart illustrates silver dropping further down into the reducing wedge pattern, as price moves toward the triangle apex. There could be a bounce from here but it will be short-lived.

The 3 month chart illustrates the decline range as well as the consolidation around 10-Dema. This may of course already be the bounce completed.

Silver Miners

Silver miners, like US gold miners, have broken lower into 2 consecutive consolidations. This is a very negative picture with likely further declines.

Gold : Silver Ratio

The gold / silver ratio continues rising overall within the rising wedge pattern, to close slightly lower at 86.22. This reflects the continued silver underperformance of gold which is negative for the whole precious metals complex. The rising wedge pattern continues and seemingly has a way to go yet which presupposes continued lower precious metal prices.

General Equities

An in-depth analysis by probably the world’s leading researcher in Elliott Wave theory recently projected equity behaviour based on the Dow Jones Industrial Average on the New York Stock Exchange. In simple terms the Dow is estimated to peak in early 2021 in the region of 28250 after various short term gyrations that unfold the wave structures up to that point.

This will be the top of the market, worldwide, and will usher in the coming collapse. The Grand Supercycle wave structure (started at the beginning of the United States in 1776) will end wave III up at that moment and start the century long wave IV down before eventually completing wave V. So, US equities have approximately another 21 months to grow another 5% before the final market top, beyond which the next financial collapse will envelop the world in something far greater than anything else gone before.

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Midweek Market 2 May 2019

May 2nd, 2019 No comments

Executive summary

How overvalued and dangerous is the US market? To answer that question you could look at one or two pertinent ratios.


The age old Warren Buffet measure of total US market cap to GDP ratio is currently at 145% which is a full 30% higher than it was before the start of the Global Financial Crisis in 2007. Another metric is the Household Net Worth to GDP Ratio which is calculated by dividing current total value of US home prices + equities by the underlying economy. This is now at an incredible 535% of GDP, all artificially inflated by interest rates that have been pushed down toward zero. This is also a record and 19% higher than at the Nasdaq bubble of 2000, compared against the historical average of 384%.


But the markets remain elevated, seemingly forever.


Equity markets continue to edge up towards the top with the Dow Jones now at a triple top and indicating classic symptoms of exhaustion and trend change, along with continued extreme optimism and euphoria. Also, US Treasuries have perhaps not normalised yet in resuming their long term bear market in that yields are not increasing with any noticeable momentum.

Meanwhile, the US Federal Reserve has just completed its FOMC meeting and remain in the midst of their ‘pause’ on interest rates, while they continue to rethink the perilous strategy of triggering lower interest rates to raise inflation and economic growth (which is failing everywhere else). This, in the glare of President Donald Trump’s ongoing pressure to cut rates and pile on the QE, while he points to China’s approach to stimulating its economy.


All the above certainly provides food for thought, and is causing some to now believe that this situation is going to continue for longer than originally thought. Markets may well continue longer before finally topping out.

The US dollar continues to increase overall although this week retracing some of the earlier advance. The index still looks set to increase up towards $100.00 or above but, once complete the dollar will resume its long term weakening trend.


Precious Metals and miners continue their weakening trend which is not complete. This is likely to extend declines before completing the down cycle in due course.

US Dollar

The US dollar index continues to increase into the rising wedge although retracing some of the earlier advance. The oscillators are rising and price is well ahead of all the MAs and looks set to move higher.

The dollar barrier triangle pattern has broken back below the BD horizontal to end in a bullish Hammer-type candle, indicating the next moves to be up. This could result in a more complex wave 3 of (C) which is still likely to catapult the dollar index up to $100.00 or higher, providing the red support line at 2 holds. This will complete the corrective (A)(B)(C) before the next impulsive 5 wave down.

The short term 3 month chart illustrates the partial retracement down to the bullish Hammer-type candle which is more likely to increase dollar value in the next period.

Japanese Yen

The Yen continues to weaken against the dollar in the expanding wedge formation, despite strengthening in the last 10 trading days. The Yen will continue to weaken as the US$ barrier triangle plays out to completion.

US Treasuries

The benchmark US 10 year Treasury yield bottomed at the start of April before launching into the usually longer and stronger Elliott Wave 3, which is at present enduring increased retracement pressure down as wave 3 struggles to gain momentum. This is caused principally by the threat of US recession and the onset of more modern monetary theory applied in potential QE later in 2019.


This can be seen in the next chart illustrating the US yield curve.

US Yield Curve

The official yield curve calculated on the 10 year and 2 year has been drifting up but jolted down this week as the threat of US recession re-surfaced. There is little doubt that global recession is coming (and already here in parts) and that US recession is potentially due later in 2019 or 2020.

Gold

The gold price 6 month cycle low is in progress which should complete somewhere between $1250-$1210 (red circle). As the US$ index strengthens towards $100.00 and beyond so too will the gold price drop down into its cycle low. The next up cycle may well take gold to the $1500 region later in 2019.

Gold continued to decline this week into the cycle low. Both oscillators are dropping in support of this with the MACD some way to go yet.

The bearish dome top formation and neckline, incorporating a H&S as well, has pushed the gold price below the neckline. Gold has consolidated below the neckline, having increased back to test, where it is likely to still drop down below 200-Dema into the support zone.

The 3 month chart illustrates gold’s increase back to test the neckline before ending on an indecisive red candle. Price needs to drop below 200-Dema if it is to drop down into the support zone. There is potential for partial price retracement in the short term back up to diagonal resistance.

South African Rand

The South African Rand weakened against the dollar up into earlier resistance before strengthening marginally. Despite this, the oscillators are mixed which indicates some dithering ahead. But with more dollar strength in the next period further Rand weakness seems likely.

HUI / Gold Ratio

The ratio dropped 12% in the last 25 trading days, with multiple breakdowns in the last 10 trading days. So US miners have underperformed weak gold significantly. It is well below the MAs and looks set to continue down, except the oscillators are also well down which could precede a bounce in the ratio.

US Miners

The chart includes the HUI Index, GDX ETF, and the Dust Bear Index, each with dome formations and necklines. The support lines are all penetrated with price back to test followed by further penetration. The top two have penetrated 200-Dema and Dust is about to penetrate also. This is not a positive picture and further declines in US miners are expected, which additionally impact negatively on metal prices.

Silver

Silver continues to move down into the reducing wedge, breaking down into the earlier support zone. This continues to display as a very negative bias chart. Although the Slow Stochastic is close to the bottom of its range, the MACD is virtually still at its mid-point with much downside still available.

The 12 month chart illustrates silver dropping further down into the reducing wedge pattern, as price moves toward the triangle apex. Price is below the MAs and multiple breakdowns have occurred as the earlier support zone is penetrated.

The 3 month chart illustrates the decline range as well as the multiple breakdowns in momentum that remains decidedly down.

Silver Miners

Silver miners, like US gold miners, are poised to break lower.

Gold : Silver Ratio

The gold / silver ratio continues rising overall within the rising wedge pattern, to close yet higher at 87.19. This reflects the continued silver underperformance of gold which is negative for the whole precious metals complex. The rising wedge pattern continues and seemingly has a way to go yet which presupposes continued lower precious metal prices.

General Equities

Equity markets continue to edge up towards the top with the Dow Jones now at a triple top and indicating classic symptoms of exhaustion and trend change, along with continued extreme optimism and euphoria.

Meanwhile, the US Federal Reserve has just completed its FOMC meeting and remain in the midst of their ‘pause’ on interest rates, while they continue to rethink the perilous strategy of triggering lower interest rates to raise inflation and economic growth (which is failing everywhere else). This, in the glare of President Donald Trump’s ongoing pressure to cut rates and pile on the QE, while he points to China’s approach to stimulating its economy.
All the above certainly provides food for thought, and is causing some to now believe that this situation is going to continue for longer than originally thought. Markets may well continue longer before finally topping out.
So, if it is simply a matter of preparing for the collapse and waiting, the wait might take longer and may even extend through towards 2021.

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Midweek Market 25 April 2019

Apr 25th, 2019 No comments

Executive summary

Quote for the week: “The scariest single statistic worldwide is the dramatic decline in the marginal productivity of debt. China, like the US, is getting progressively less return for each newly-created debt. There’s a point at which new borrowing doesn’t just produce less wealth but actually destroys it. The US and China are heading that way fast, while Europe might be there already”.


Equity markets continue to edge up towards the top with the Dow Jones now at a triple top and indicating classic symptoms of exhaustion and trend change, with fractured divergent behaviour, lower volumes and volatility, along with extreme optimism and euphoria. US Treasuries have normalised in resuming their long term bear market which is the precursor to the start of the equity bear market.

The US dollar increased strongly this week with every indication of the index continuing up towards $100.00 or above. This is corrective, however, and once complete the dollar will resume its long term weakening trend.


Precious Metals and miners continue their weakening trend which is not complete. It is likely to retrace some of the declines in the short term before completing the down cycle in due course.

US Dollar

The US dollar index continues to increase into the rising wedge with multiple breakouts in a strong rise this week. The oscillators are rising and price is well ahead of all the MAs and looks set to move higher as the cycle turns up.

The dollar barrier triangle pattern has a breakout through the BD horizontal and is now technically set to catapult the dollar index up to $100.00 or higher, providing E(B) holds and is not penetrated on the downside. From an Elliott Wave point of view the longer and stronger wave 3 has started and will lead on to complete the corrective (A)(B)(C) before the next impulsive 5 wave down.

The short term 3 month chart illustrates the strong thrust up in dollar value this week with breakouts through the 2 previous peaks. Price is well above the MAs and the oscillators are rising in support of a stronger dollar.

Japanese Yen

The Yen continues to weaken against the resurgent dollar and, despite any short term retracement, is likely to continue weakening as the US$ barrier triangle plays out to completion. The Yen will continue to weaken well up into the resistance region, together with the implications for a weaker gold price.

US Treasuries

The benchmark US 10 year Treasury yield has bottomed and is increasing as US bond values weaken. The Elliott Wave 1-2 is now launching into the longer and stronger wave 3, having bottomed at 2 C(circle) (5). Any short term retracement potential needs to play out before wave 3 increases yield to above the Feb 2019 high and potentially even the Oct 2018 high.

This will confirm and resume the earlier collapse in the bond market which has been disrupted by a 5 month countertrend rally.

Gold

The gold price 6 month cycle low is in progress which should complete somewhere between $1250-$1210 (red circle). As the US$ index strengthens towards $100.00 and beyond so too will the gold price drop down into its cycle low. The next up cycle may well take gold to the $1500 region later in 2019.

Gold continued to decline this week into the cycle low. Both oscillators are dropping in support of this with the MACD some way to go yet.

Multiple breakouts occurred below the neckline of the dome top including the inclined H&S. Although a breakback occurred after penetration of 200-Dema it still seems likely that gold will drop further down into the support zone, despite potential short term price retracement back up into resistance.

The gold price decline has consolidated at 200-dema, and with the earlier declines there appears to be potential for partial price retracement in the short term, especially with the oscillators turning up.

South African Rand

The South African Rand weakened against the dollar up into resistance, and further weakening beyond $14.76 will activate the potential H&S pattern. Price has moved away from consolidating at the confluence of the MAs, and with more dollar strength further Rand weakness seems likely.

HUI / Gold Ratio

The ratio turned down sharply with multiple breakdowns as US miners began to underperform gold. It is below the MAs and has also ‘nicked’ the bottom trendline of the 7 month rally in US miners, with every indication now that the rally is close to completion.

US Miners Matrix

The chart includes the HUI Index, GDX ETF, and the Dust Bear Index, each with dome formations and break lines which have now been penetrated. This illustrates the likelihood of further movement equal to the height of the dome, which illustrates the decline and further potential decline of US miners. This will additionally impact negatively on metal prices.

Silver

Silver continues to move down into the reducing wedge, breaking down into the support zone. This continues to display as a very negative bias chart.

The 12 month chart illustrates silver dropping further down into the reducing wedge pattern, as price moves toward the triangle apex. Price is below the MAs and the breakdown does include a breakback, but the chart, in the nature of a reducing wedge pattern, indicates a potential bounce before eventual further declines.

The 3 month chart illustrates the decline range as well as the breakback to 10-Dema. The momentum remains is decidedly down, but a short term bounce is overdue.

Silver Miners

Silver miners, like US gold miners, also displays a bearish dome top and a powerful penetration of the break line down into support. This portrays a sombre picture of US silver miners in relation to a dropping silver price in the short term, although the Slow stochastic is turning up at the bottom of its range.

Gold : Silver Ratio

The gold / silver ratio continues rising overall within the rising wedge pattern, to close at 85.47. This reflects the continued silver underperformance of gold which is negative for the whole precious metals complex. The rising wedge pattern continues and seemingly has a way to go yet which presupposes continued lower precious metal prices.

General Equities

Equity markets continue to edge up towards the top with the Dow Jones now at a triple top and indicating classic symptoms of exhaustion and trend change, with fractured divergent behaviour, lower volumes and volatility, along with extreme optimism and euphoria.

Every intelligent indication points to the US rally being in the very late stages of maturation supported by overwhelming fundamental evidence of impending collapse.
So, it is simply a matter of preparing for the collapse and waiting.

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Midweek Market 18 April 2019

Apr 18th, 2019 No comments

Executive summary

Charles Dow once wrote, “To know values is to know the meaning of the market.” That quote may surprise many analysts, because Dow’s work is usually thought of as nothing more than divergence in the Dow Jones Industrial and Transportation averages. But Dow’s actual views, best elaborated by writers like Robert Rhea, were actually about something much more fundamental: Identifying the position of the market in its complete bull or bear cycle. That’s a concept that investors have forgotten, encouraged by the illusion that the Federal Reserve’s buying of Treasury bonds is capable of saving the world. That illusion is likely to prove costly.

Probably the most useful exercise we can do at present is to examine where the US markets are in their respective cycles.


Robert Rhea in 1932 wrote the following in The Dow Theory:
There are three principal phases of a bull market:
• 1st is represented by reviving confidence in the future of business;
• 2nd is the response of stock prices to the known improvement in corporate earnings;
• 3rd is the period when speculation is rampant – a period when stocks are advanced on hopes and expectations.

There are three, and opposite, principal phases of a bear market:
• 1st represents the abandonment of the hopes upon which stocks were purchased at inflated prices;
• 2nd reflects selling due to decreased business and earnings;
• 3rd is caused by distress selling of sound securities, regardless of their value, by those who must find cash.

The recent bull market clocked in as the longest in history, already exceeding those leading to the 1929 and 2000 peaks. There is little doubt that the market is long into what Rhea described as the final phase of the bull market; “the period when speculation is rampant – a period when stocks are advanced on hopes and expectations.”


However, that doesn’t preclude a temporary improvement in the US economy and markets. China is stimulating again, and global equities have recovered with the Dow (and others) on the cusp of a new high. This all means a US Fed rate cut in the next 12 months is less likely, although still not unlikely.

Precious Metals are now beginning to look more bearish on these changing expectations plus higher highs in equities and some increased stabilization in the economy.

US Dollar

The US dollar index continues to drift sideways into the triangle apex, as it continues to strengthen overall within the rising wedge pattern. Price is well ahead of all the MAs and looks set to move higher in the next up cycle.

The dollar has formed a barrier triangle pattern since Sep 2018 which is, technically, set to catapult the dollar index up to $100.00 or higher, providing E(B) holds and is not penetrated on the downside. From an Elliott Wave point of view price has established the (A) (B) at E and is constructing the 1-2 in the 5 wave rise to (C). After completion of 2 the wave turns up to the longer and stronger 3 leading on to complete the corrective Elliott Wave (A)(B)(C) before the next impulsive 5 wave down.

The dollar is beginning to cycle up after the recent down wave which should increase momentum after the bullish Hammer candle. Price is above 200-Dema and both oscillators are beginning to turn up in support of higher prices.

Japanese Yen

The Yen weakened up through penetration of the diagonal resistance in accordance with the stronger dollar, which should continue as the US$ barrier triangle plays out to completion. Therefore the Yen will continue to weaken well up into the resistance region, together with the implications for a weaker gold price.

US Treasuries

The benchmark US 10 year Treasury yield has bottomed and is increasing as US bond values weaken. The Elliott Wave 1-2 is now launching into the longer and stronger wave 3, having bottomed at 2 C(circle) (5). This should increase yield to above the Feb 2019 high and potentially even the Oct 2018 high.


This will confirm and resume the earlier collapse in the bond market which has been disrupted by a 5 month countertrend rally.

Gold

The gold price dropped this week in resuming creation of the next cycle low which should complete within the indicated red circle, in the region of $1250-$1225. As the US$ index strengthens towards $100.00 and beyond so too will the gold price drop down into its cycle low. The next up cycle may well take gold to the $1500 region later in 2019.

Gold continued to decline this week into the cycle low. Both oscillators are dropping in support of this with the MACD some way to go yet.

The 12 month chart illustrates the bearish dome top that has formed, indicating further downside to come. There have now been multiple penetrations with every indication the gold price will descend well into the support region.


Gold has penetrated 200-Dema, the diagonal support, as well as an incline H&S pattern, and these together with the dome top should propel price further down.

The short term 3 month chart illustrates the decline acceleration and the penetrations. Penetration of 200-Dema removes the earlier divergence with silver which penetrated 200-Dema some while ago.

South African Rand

The South African Rand is consolidating in the region of confluence with the MAs, after strengthening over the last 3 weeks. This reflects also as a sideways move over the last 6 months, which might now weaken as the dollar barrier triangle pattern plays out to completion.


The Rand is positioned between support and resistance, but above 200-Dema, and the balance of probabilities with oscillators beginning to bottom and turn up suggests weakness before strength.

HUI / Gold Ratio

The ratio turned down to support and is threatening to break down further. It is below the MAs and the oscillators are dropping in support of further downside. This translates into weaker US miners compared to the weaker gold price, and could be the end of the 7 month rally in US miners.

US Miners Matrix

The chart includes the HUI Index, GDX ETF, and the Dust Bear Index, which illustrates the potential break line and the dome top pattern which indicates the likely penetration of the break line.


The HUI penetrated 200-Dema, the GDX not quite, and Dust not yet, but it seems that penetrations will occur nevertheless. It portrays a somewhat sombre picture of US miners in relation to a dropping gold price in the short term.

Silver

The 3 year chart continues to have a well-defined negative bias and silver continues to drift down further in the reducing wedge. Price has broken down into the support zone, just, and with dropping oscillators indicating further price declines.

The 12 month chart illustrates silver dropping further down into a reducing wedge pattern, as price moves toward the triangle apex. In the nature of a reducing wedge pattern, silver may enjoy a bounce before further declines although this is unlikely.


Silver actually outperformed gold in the last 4 of the last 5 days and the Slow Stochastic has turned up at the bottom of its range. But if there is a bounce it will soon be followed by further declines.

The 3 month chart illustrates silver breaking down to lower levels and below the MAs., although with comparatively stronger 4 days out of the last 5. The momentum is decidedly down to lower prices. Also, the silver miners chart is decidedly negative which is bearish for silver (see next).

Silver Miners

Silver miners, like US gold miners, also displays a bearish dome top and penetration of the break line. There are other breakdowns including 200-Dema, and diagonal support line with every indication of lower prices to come.


It portrays a somewhat sombre picture of US silver miners in relation to a dropping silver price in the short term, although the Slow stochastic is turning up at the bottom of its range.

Gold : Silver Ratio

The gold / silver ratio continues rising overall although it actually declined this week to close at 85.47. This reflects the continued silver underperformance of gold which is negative for the whole precious metals complex. The rising wedge pattern continues and seemingly has a way to go yet which presupposes continued lower precious metal prices.

General Equities

US equities remain elevated, characterised by a number of contrary indications pointing to a market top and pending trend change. There include continued lower volumes, lower volatility, higher optimism and positive sentiment, which are all classic symptoms of exhaustion and pending trend change at the market top.


Every intelligent indication points to the US rally being in the very late stages of maturation supported by overwhelming fundamental evidence of impending collapse. So, it is simply a matter of preparing for the collapse and waiting.

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Midweek Market 11 April 2019

Apr 11th, 2019 No comments

Executive summary

Commentary remains similar to last week, with US equities remaining elevated, characterised by a number of indications pointing to a market top and pending trend change. There are noticeable divergent non-confirmations between major indices and continued euphorically high investor sentiment, with every indication the US rally is in the late stages of maturation supported by overwhelming fundamental evidence of impending collapse.


The global economic slowdown is a reality with recession in some parts and the threat of recession in others. The US yield curve has inverted in very short term treasuries with the formal 10 year to 2 year still threatening, and recession in the US is expected later in 2019. The US bond market has started to normalise again, with prices declining and yields increasing, after the 5 month countertrend correction.


Global markets are sensitive to the US dollar which at the moment has had a down week in its progression through a strengthening phase. This has provided impetus to the gold market which has, correspondingly, had an up week as it progresses through a weakening phase. Markets continue to discount the US Fed’s first rate cut in the next cycle and this will assist the gold price during the remainder of 2019.

US Dollar

The US dollar index is drifting sideways as it continues to strengthen overall within the rising wedge pattern. Price is well ahead of all the MAs and looks set to move higher in the next up cycle.

The barrier triangle pattern is developing strongly to catapult the dollar up to $100.00 or higher, providing E(B) holds and is not penetrated on the downside. As the cycle turns up it will create the 1 – 2 leading to the longer and stronger 3 up leading on to complete the corrective Elliott Wave (A)(B)(C) before the next impulsive 5 wave down.

The dollar moved down this week but remains well above 200-Dema, in preparation for the next up cycle. Both oscillators are dropping and the turn up may be stalled a while.

Japanese Yen

The Yen strengthened down from resistance in accordance with the weaker dollar last week. As the US$ barrier triangle plays out to completion, so too will the Yen continue to weaken well up into the resistance region, together with the implications for a weaker gold price then.


Both oscillators are turning down suggesting the reversal will not be immediate.

US Treasuries

The benchmark US 10 year Treasury yield has bottomed and turned up, reluctantly. Once the yield rise gains momentum, creating the 1-2, so then will the Elliott Wave wave 3 start a longer and stronger rise that will eventually test the Feb 2019 high and potentially even the Oct 2018 high.


This will confirm and resume the earlier collapse in the bond market which has been disrupted by a 5 month countertrend rally.

US Yield Curve

The official US yield curve calculated on the 10 year and 2 year is still drifting sideways at 1.074, and is still some way off the inversion trigger at 1.0 or below. There is probably little doubt that global recession is coming and the media hype of inversion (usually indicating recession) is due to the shorter term Treasuries such as 2 month and 3 month, etc.

Gold

The next major 6-month cycle low in the gold price is still far from complete. As the US$ index strengthens towards $100.00 and beyond so too will the gold price drop down into its cycle low, probably in the region of $1250 to $1230. The next up cycle may well take gold to the $1500 region later in 2019.

Gold enjoyed an up week which extended the sideways drift, before starting the descent to the 6-month cycle low. Both oscillators are dropping in support of this potential decline.


US miners (GDX, HUI, etc) have enjoyed a 7-month rally which has been positive for the metal, but silver continues to underperform gold which is negative and even negative for the whole complex.

The 12 month chart illustrates the gold price moving towards the triangle apex, at the underside of diagonal resistance, and with the good price move up this week it is now well above the MAs. But with a cycle turn up in the US$, gold is likely to still drop down into the support zone despite oscillators rising.

The short term 3 month chart illustrates the minor breakout through diagonal support, which silver has not managed to do. This is another indication of the negative divergence in the two metals and the likely further drop down into support.

South African Rand

The South African Rand strengthened 6.5% against the dollar in the 2 weeks from $14.76 when Moody’s held the rating unchanged. This of course also included generic weakening in the dollar, and with the oscillators also dropping appropriately, the Rand is now vulnerable to the next weakening cycle and dollar strength.


As the US$ gains disproportionate strength, as forecast, so too will the Rand weaken: Perhaps significantly.

HUI / Gold Ratio

The ratio continued a gradual increase along the incline channel in a 7-month rally of improved US minor performance against gold. The MAs provide support in a chart that displays a positive bias that has in fact impacted positively on the gold price itself. This is now vulnerable to a potential significant reversal.

HUI Index

The HUI index itself is behaving in similar fashion with similar commentary.

GDX US miners ETF

The GDX 12 month chart is similar to the HUI Index chart, and the commentary is identical.

DUST US Gold Miners Bear Index

The Dust chart and commentary is similar to the GDX chart, except in the opposite direction being a US miners bear index.

Silver

The 3 year chart continues to have a negative bias as against gold’s which does not. Silver continues to move down into a reducing wedge pattern which implies a potential breakout to the up. Price is also just below 50-Wema and well below 200-Wema, as against gold which is well above. So, despite any pretentions to a breakout to the upside, silver is likely to break to the downside with a negative impact on the whole precious metals complex.

The 12 month chart illustrates silver dropping further down into a reducing wedge pattern, as price moves toward the triangle apex. Despite an up week with no breakout, price is still below 200-Dema in maintaining the non-conformance with gold and gold miners as they continue above 200-Dema. This is the prelude to further price declines in Silver as well as the whole precious metals complex.

The 3 month chart illustrates silver breaking down to lower levels and below the MAs., and seemingly on the cusp of a breakout. Gold does have a breakout in its 3-month chart against silver which does not, highlighting again the negative divergence between the metals and silver’s ongoing underperformance of gold.

Gold : Silver Ratio

The gold / silver ratio continues rising to close at 86.19. This reflects the continued silver underperformance of gold which is negative for the whole precious metals complex. The rising wedge pattern continues and seemingly has a way to go yet which presupposes continued lower precious metal prices.

General Equities

US equities remain elevated, characterised by a number of indications pointing to a market top and pending trend change. There are noticeable divergent non-confirmations between major indices and continued euphorically high investor sentiment, with every indication the US rally is in the late stages of maturation supported by overwhelming fundamental evidence of impending collapse.
But, the market has not topped out yet and, from an Elliott Wave point of view, it will not have until confirmation of waves to the downside are confirmed as 5-wave impulsive and those up as 3-wave corrective: No matter how imminent it may seem.

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Midweek Market 4 April 2019

Apr 4th, 2019 No comments

Executive summary

US equities remain characterised by a number of indications pointing to a market top and pending trend change. These include divergent non-confirmations between major indices and investor sentiment euphorically high, both of which indicate the US rally is in the late stage of its advance if not now actually complete. Added to this is the global economic slowdown with recession now a reality in some parts of the G20 with recession also pending in the US. Various US yield curves are beginning to invert, especially with the short term treasuries, and this has signalled loud alerts.


The US bond market has started to normalise again, with prices declining and yields increasing, after the 5 month countertrend correction that ended with short term treasury yields spiking in response to the threat of recession. The US Fed is expected to cut rates some time in 2019, and for this to happen the 2- and 3-month treasury yields need to drop.


The US dollar index is progressing through a ‘barrier’ triangle pattern which is expected to increase value by about 3.5% to 100.00 or above. This will correspondingly put other currencies under pressure as well as gold which is forecast to correct down towards the region of $1250 – $1230. Markets are beginning to discount the US Fed’s first rate cut in the next cycle and this will assist the gold price during the remainder of 2019.

US Dollar

The dollar index continues to strengthen within the rising wedge assisted by the bullish Hammer 2 weeks ago which promised further upside. Price is well ahead of all the MAs and looks set to move higher.

The barrier triangle pattern is developing strongly to catapult the dollar up to $100.00 or higher, providing E(B) holds and is not penetrated on the downside. This will complete the corrective Elliott Wave (A)(B)(C) before the next implusive 5 wave down.


The strong rise from E could well correct down short term before the thrust up continues.

The dollar moved up this week despite the down day yesterday. The Slow Stochastic has turned at the top of its range and the dollar could well correct down somewhat before the rise continues.

Japanese Yen

The reversal break back from the flag breakout has weakened the Yen up to the diagonal resistance line (blue). As the US$ barrier triangle option plays out to completion, so too will the Yen continue to weaken well up into the resistance region, together with the implications for a weaker gold price.

Both oscillators are rising which supports further US$ strength and Yen weakness.

US Treasuries

The benchmark US 10 year Treasury rally has probably terminated with the strong bounce in yield from a potential bottom. If this is the yield bottom, which is likely with the excessively high investor sentiment at 93% bond bulls, then the Elliott Wave wave 3 of 3 is in progress which will take yield higher than the Oct 2018 high (and price lower).

This will resume the earlier collapse in the bond market which has been disrupted by partial ‘inversion’ triggered by activity in the shorter term US Treasuries threatened by the next US recession.

US Yield Curve

The official yield curve calculated on the 10 year and 2 year is still drifting sideways at 1.082, and is still some way off the inversion trigger at 1.0 or below. There is probably little doubt that global recession is coming and the media hype of inversion (usually indicating recession) is due to the shorter term Treasuries such as 2 month and 3 month, etc.

Gold

Gold is traditionally pushed to higher prices by the US Fed cutting rates, and especially by the first rate cut in a cycle. Witness the gold price (top chart) after the Fed first cut rates in Jan 2001, and then again in Jul 2007. Both rate cut cycles pushed the gold price up, but action is really started by the first cut in the cycle.

Now, the US Fed is forecast to cut rates in 2019 (as the recession bites), and some would have it that that is probably going to trigger the start of the next gold bull market. That may or may not be, because in this instance the global financial and monetary conditions are just so much worse.

This is somewhat contradictory, because usually it is argued that gold goes up during inflationary times because values deteriorate during those times. Also, during inflationary times rates are increased to counter inflation, therefore it is said gold goes up when rates go up. Well, the answer is in the evidence and the evidence is in the chart above.

And the evidence says that gold goes up when rates are cut aggressively, and that happens when markets collapse and even more importantly when confidence is lost. And we are going to have enough of that in the next period.

The 5 year gold chart illustrates the historic 6-month cycle lows, with the next cycle low in progress. This and the previous cycle low has been slow in coming (at closer to 8 months) but with the anticipated stronger dollar the next gold low should be factored into planning. Timing is always difficult, but the dollar peak may be reached sooner than we think, and gold may be well supported for the rest of 2019.

The 3 year chart illustrates Gold now dropping down towards its next cycle low. The technicals are suggesting weakness ahead but the fundamentals are starting to turn positive. Markets are starting to discount a US rate cut later in 2019, and this is the trigger for the early beginning of the next gold bull market.

US miners (GDX, HUI, etc) have recently been outperforming gold which has been positive for the metal, but now have started to underperform gold with the opposite and negative impact. But silver has steadily been underperforming gold and, except for very short term corrections, this has been negative for the whole complex.

Gold has a breakout from the bear flag, dropping price down into earlier support, although still above 200-Dema. Price is still likely to drop down further into the support zone.

The short term 3 month chart illustrates the clear breakout from the bear flag, and the likely further drop down into support.

The gold Cots data illustrates the development of dilation between Large Speculators and Commercials which is Gold bearish. Price should drop down further.

South African Rand

The South African Rand has strengthened in breaking down through the rising wedge. Both oscillators are dropping indicating further strength, but as the US$ gains disproportionate strength, as forecast, so too will the Rand weaken: Perhaps significantly.

The Rand is supported at the moment by stabilised Eskom and South African economic and political prospects, plus additional support from a stable Moody’s rating.

HUI / Gold Ratio

The ratio has retraced strongly down to 200-Dema as US miners underperform gold. The MAs are providing support in a chart that still displays a positive bias. Both oscillators are dropping and the ratio is probably going lower.

HUI Index

The HUI index itself is behaving in similar fashion with similar commentary, but with slightly more positive bias.

GDX US miners ETF

The GDX 12 month chart is similar to the HUI Index chart, and the commentary is identical.

DUST US Gold Miners Bear Index

The Dust chart and commentary is similar to the GDX chart, except in the opposite direction being a US miners bear index.

Silver

The 3 year chart continues to have a negative bias with silver breaking down from the bear flag, just. Silver is well below the MAs and is likely test lower support. Both oscillators are dropping in support of this.

The 12 month chart illustrates silver dropping well below all the MAs in maintaining the non-conformance with gold and gold miners as they continue above 200-Dema. This is the prelude to further price declines in Silver as well as the whole precious metals complex.

The 3 month silver chart illustrates silver breaking down to lower levels and below the MAs.

Gold : Silver Ratio

The gold / silver ratio is rising to close at 85.77. This reflects the continued silver underperformance of gold which is negative for the whole precious metals complex. The rising wedge pattern continues and seemingly has a way to go yet which presupposes continued lower precious metal prices.

General Equities

US equities remain characterised by a number of indications pointing to a market top and pending trend change. These include divergent non-confirmations between major indices and investor sentiment euphorically high, both of which indicate the US rally is in the late stage of its advance if not now actually complete. Added to this is the global economic slowdown with recession now a reality in some parts of the G20 with recession also pending in the US. Various US yield curves are beginning to invert, especially with the short term treasuries, and this has signalled loud alerts.

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Midweek Market 28 March 2019

Mar 28th, 2019 No comments

Executive summary

This summary of global markets is adapted mostly from original thoughts by Alasdair Macleod at Goldmoney.


The global economic outlook is deteriorating with some countries now in recession and the US also signalling a looming recession with many commentaries alerting the yield curve inversion. In conditions like these Government deficits will escalate. Foreigners have already begun liquidating dollar assets, adding to future funding difficulties in the US. The next wave of monetary inflation, required to fund budget deficits and keep banks solvent, will not prevent the severe bear market that lies ahead, because the scale of monetary dilution will be so large that the purchasing power of the dollar and other currencies will be undermined. Failing fiat currencies suggest the dollar-based financial order is coming to an end, but with few exceptions, most investors own nothing more than investments based on fiat-currencies.


The global economy is at a cross-road, with international trade stalling and undermining domestic economies. Major central banks, notably in the EU, Japan, and UK were still easing their economies by suppressing interest rates, and the ECB had only stopped quantitative easing in December. The US and China had been tightening in 2018, and China quickly started stimulating in November, while the US Fed has now paused monetary tightening, pending further developments.


It is very likely this new downturn will be substantial. The coincidence of trade protectionism at the top of the credit cycle last occurred in 1929, and the subsequent depression was devastating. The reason to be worried today is stalling trade disrupts capital flows that fund budget deficits, particularly in America where savers do not have the free capital to invest in government bonds. Worse still, foreigners are now not only no longer investing in dollars and dollar-denominated debt, but they are suddenly withdrawing funds. According to the most recent data, in December and January these outflows totalled $257.2bn. At this rate, not only will the US Treasury need to fund a deficit likely to exceed a trillion dollars in fiscal 2019, but US markets will need to absorb substantial sales from foreigners as well.


In short, America is going to face a funding crisis coinciding with the top of the credit cycle: A lethal combination. The problem is bound to manifest in coming months, and is as yet still unrecognised as the most important factor behind both American and global economic prospects.
While today’s trade protectionism is less vicious than the Smoot-Hawley Tariff Act of 1929, America’s drawn-out trade threats today are similarly destabilising. The top of the credit cycle in 1929 was orthodox, but this time the credit bubble is proportionately far larger, and its implosion threatens to be even more violent. Government and consumer debt is enormous everywhere and personal savings in America, UK and EU is practically non-existent. So, the potential for a systemic crisis is therefore considerably greater today than it was ninety years ago.


The Dow Jones dropped 90% from its peak in 1929, and comparison with these empirical facts suggest we might now suffer a similar collapse in financial asset values in the next number of years. However, there is an important difference between then and now:
• In 1929 the dollar was on a gold standard, with the price-effect of the depression reflected in the rising purchasing power of gold;
• In 2019 no fiat currency is gold-backed, so a major collapse will be reflected in the falling purchasing power of currencies;

Government finances and its un-backed currency determines general price levels, and if you take the US dollar for example, the government’s debt to GDP ratio is more than 100% whereas in 1929 it was less than 40%. At the peak of the credit cycle, the government should have a revenue surplus reflecting underlying full employment and peak tax revenues. In 1929, the surplus was 0.7% of estimated GDP; today it is a deficit of 5.5% of GDP. In 1929, the government had minimal legislated welfare commitments, the net value of which was therefore trivial. Today, the present value of future welfare commitments is staggering, and estimates for the US alone range up to $220 trillion, before adjusting for future currency debasement.


Other countries are in a potentially worse position, particularly in Europe. A global economic slump on any scale, let alone that approaching the 1930s depression, will have a drastic impact on all national finances. Tax revenues will collapse while welfare obligations escalate. Some governments are more exposed than others, but the US, UK, Japan and EU governments will see their finances spin out of control. Even assuming responsible stewardship by politicians, the expansion of budget deficits can only be financed through monetary inflation. This is the debt trap, and it has already sprung shut on minimal interest rates.


For a temporary solution, governments can only fund runaway deficits by inflationary means, as the inflation of money and credit is the central banker’s only cure-all for everything. Inflation is not only used to finance governments but to provide the commercial banks with the wherewithal to stimulate the economy. An acceleration of monetary inflation is therefore guaranteed by a global economic slowdown, so the purchasing power of fiat currencies will take another lurch downwards as the dilution is absorbed.


That is the motivation to invest in physical gold, which is the only form of money free of all liabilities. Also, the value of Gold benefits twice against the loss of purchasing power in a fiat currency during a slump, because gold’s own purchasing power will be rising at the same time as the currency value drops. Also, the ongoing process of fiat currency devaluation is about to accelerate.


Chart 1 shows how four major currencies have declined measured in gold over the last fifty years. The yen has lost 92.4%, the dollar 97.42%, sterling 98.5%, and the euro 98.2% (prior to 2001 the euro price is calculated on the basis of its constituents).


Note the vicious logarithmic scale on the Y-axis.

The ultimate bankruptcy of countries in the forthcoming slump, will be reflected in another lurch downwards in currency purchasing powers.

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

US Dollar

The dollar index continues to strengthen within the rising wedge assisted by the bullish Hammer which promises a further upside. This is despite the continued negative divergence with the MACD and the somewhat lethargic oscillators.

The 12 month chart illustrates the strong bounce up from 200-Dema, which repeats all the earlier attempts at penetrating down during the last year. Also, the oscillators are rising which promises further gains.


The market favours the stronger of the two competing Elliott Wave possibilities for the dollar looked at last week, and consequently we will exclude the weaker one for the time being, until proved incorrect.

The stronger option indicates completion of the barrier triangle from (A) down to (B) (having completed ABCDE), with a catapult up to (C) at or close to $100.00. This seems to have started with a strong bounce up from E.
This has major implication for markets, especially gold. The projection remains valid for penetration through the barrier above and becomes invalid with penetration down through the bottom incline ACE.

The short term 3 month chart illustrates the strong bounce off support (and 200-Dema), although the rise may be delayed by the negative end candle (long shadow above). The oscillators also have assumed a dithering appearance.

Japanese Yen

The US$ / Yen has a breakout both through 200-Dema as well as the flag pattern, together with a reversal break back attempt. This includes a strengthening Yen followed by some weakness. If the US$ barrier triangle option plays out to completion, then this will result in a much weaker Yen, together with its implications for a weaker gold price.
Both oscillators are turning up which supports this proposition.

US Treasuries

The benchmark US 10 year Treasury has strengthened, dropping yield below the previous low. This has required a new Elliott Wave count with a new wave 2 at a lower yield, which may or may not be complete. Investor sentiment is at a high 93% bond bulls, measured by the DSI, which indicates the bond rally is probably close to completion. Once complete, obviously bonds will decline and yields will advance, probably to resume the earlier collapse in the bond market which has been disrupted by partial ‘inversion’ triggered by activity in the shorter term US Treasuries and a lot of popular media hype threatening the next US recession.

The Cots data for the US 10 year Treasury reflects on the chart as a bearish convergence which indicates lower prices and higher yields, supporting the Elliott Wave view.

US Yield Curve

The official yield curve calculated on the 10 year and 2 year is still drifting sideways at 1.077, and is still some way off the inversion trigger at 1.0 or below. There is probably little doubt that global recession is coming and the media hype of inversion (usually indicating recession) is due to the shorter term Treasuries such as 3 month and 6 month, etc.

Gold

The 5 year gold chart illustrates the historic 6-month cycle lows, with the next cycle low in progress, despite the current rally over the past 4 weeks. This and the previous 6 month cycle low has been slow in coming (at closer to 9 months) but with the anticipated stronger dollar the next gold low should be factored into planning.

The 3 year chart illustrates Gold still moving sideways, although with lengthening negative shadows developing in the last few candles which should develop into lower prices. The chart is otherwise displaying a neutral bias.
US miners (GDX, HUI, etc) still outperform gold which is positive, but Silver is underperforming gold which is negative. Also, there is a non-conformance between Silver and Gold including gold derivatives, in that silver is below its 200-Dema gold above. This is another indication of a trend change and lower prices.

The 12 month chart illustrates gold advancing up in a bear flag while it turns down at the top back towards the 1st support zone. It is likely to break out of the bear flag and penetrate into the support zones. It is still well above 200-Dema but both oscillators are beginning to turn down negatively.

The 3 month gold chart illustrates the short term counter rally as it moves within the bear flag. This is likely to break to the downside, as both oscillators also start turning down.

South African Rand

The South African Rand has weakened as it moves further up the rising wedge pattern to a region of stronger resistance. Both oscillators have stalled as we await Moody’s rating tomorrow.
The stronger dollar will weaken the Rand further.

HUI / Gold Ratio

The ratio displays a strong 6 month rally up into earlier resistance, as US miners outperform gold. This was probably significantly motivated by moves out of general equities into miners pending a variety of impact factors such as, top heavy US equities, looming US recession, discounting the next US Fed rate cut/s, etc. The ratio now reflects an overbought situation, stronger dollar and weaker gold in the next period, etc. that will precipitate a substantial retracement down.

HUI Index

The HUI index itself is behaving in similar fashion with similar commentary, yet in a chart indicating less positive bias. However, it is similarly overbought and will also be subject to a substantial retracement down.

GDX US miners ETF

The GDX 12 month chart is similar to the HUI Index chart, and the commentary is identical.

DUST US Gold Miners Bear Index

The Dust chart and commentary is similar to the GDX chart, except in the opposite direction being a US miners bear index.

Silver

The 3 year chart continues to have a negative bias as silver continues to reverse up from support in a bear flag as it continues to underperform gold. Silver is likely test lower support levels after a breakout from the bear flag, with both oscillators dropping in support of this.

The 12 month chart illustrates silver dropping below 200-Dema again as the non-conformance with gold and gold miners continues with gold above 200-Dema. This is the prelude to further price declines in Silver as well as the whole precious metals complex.

The 3 month silver chart illustrates the confines of the bear flag and the position of the MAs more clearly. The oscillators are starting to turn down in support of lower prices.

Gold : Silver Ratio

The gold / silver ratio is rising to close at 85.66. This reflects the continued silver underperformance of gold which is negative for the whole precious metals complex. The rising wedge pattern continues and seemingly has a way to go yet which presupposes continued lower precious metal prices.

General Equities

US equities abound in continued major indices non-conformances, and this indicates a trend change to the downside. The Dow Jones maintains its profile of lower highs which are gradually conforming to lower lows as well, and final penetration of the preceding lows marked in red, will confirm the start of a serious decline.

The Elliott Wave counts are such that the next decline will be wave iii (circle) which will take the index below the Dec 2018 lows.

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Midweek Market 21 March 2019

Mar 21st, 2019 No comments

Executive summary

The US stock market is clearly not going to top based upon the Fed’s balance sheet or rate manipulation, nor upon stock earnings, nor upon economic fundamentals. Rather, it will top and turn down when bulls run out of money. Stock markets top due to a lack of buying when market sentiment is at extreme bullishness, with bulls “all-in” with no more money allocated to buying. The market seems to be approaching such a point.


Last week was one of the largest inflows into US equities with over $25B, being the 4th largest weekly inflow on record, resulting in a powerful worldwide b-wave rally off the December low. This equates to a top in the Dow at about 26250 (during this week or next), to complete its corrective rally, with the next decline to the region of 21000 to complete the abc pattern off the Oct 2018 high.


This will also be a major buying opportunity. But will it then lead on to an abysmal bear market as predicted by the leading Elliott Wave practitioner, or will it perhaps still go higher to 30000 or even 35000 by 2022-2023 before the bull market that started in 2009 finally tops out. Activity during much of the next 2 years will clarify this.

Gold rallied strongly from Aug 2018 to its recent peak at $1347 in late Feb 2019, while US equities declined to the start of 2019 and then rallied strongly since: Illustrating their inverse correlation with gold now pointing down and equities up.


During this period US miners (GDX) have outperformed gold but have started to decline against equities since the start of 2019. The implication here is not favourable for gold because, despite the miners outperformance against metals, a necessity for the start of the metals bull market is outperformance against general equities. That is only likely to coincide with the US Fed shifting its stance from pausing to actually cutting rates.


Please note the sharp upturn in the gold price (from $1301 to $1320) was not yet available in the charts for this report.

US Dollar

The dollar index extended its decline through the bottom of the rising wedge pattern, based on the US Fed pronouncement on Wednesday not to raise rates again during 2019. This is a bearish signal and the dollar looks set to decline further.

The 12 month chart illustrates the extent of the dollar decline which broke down through 200-Dema. This has occurred in the recent past and acts as resistance for a rebound rally, as can be seen.


There are now actually 2 competing Elliott Wave possibilities for the dollar and we need to watch this carefully as it develops further, having profound effects on the markets (particularly gold): Either continuing down or rallying up. Note the 2 options in the next 2 charts.

Option 1 indicates further declines having completed the rise to B at $97.71 on 7 Mar 2019. This will now lead to further declines to C somewhere below A. This will also complete the decline from (A) down to (B) which will precede an eventual rise to (C) above B.

Option 2 indicates completion of the barrier triangle from (A) down to (B) (having completed ABCDE). The implication here is the resultant strong rally to (C) at or close to $100.00.


Only one of these 2 options will be correct, invalidating the other.

The short term 3 month chart illustrates the strong decline, including 9 consecutive down days, eventually penetrating 200-Dema in a region of relatively high resistance. The Slow Stochastic is at the bottom of its range.

Japanese Yen

The Yen has a breakout through its bull flag and has also penetrated 200-Dema. Both oscillators are declining which supports continued dollar weakness and Yen strength, and this is somewhat accelerated by the breakouts.

US Treasuries

The benchmark US 10 year Treasury yield is continuing to show weakness and has in fact broken to a new low. Yield direction is certainly mixed, with fundamentals supporting further weakness (in line with no further US rate hikes) whilst Elliott Wave is indicating a resumption in yield increases (even exceeding B (circle) in the next wave).

The Cots data for the US 10 year Treasury reflects on the chart as a bearish convergence which indicates lower prices and higher yields, supporting the Elliott Wave view.

Gold

The 5 year gold chart illustrates the historic 6-month cycle lows, with the next cycle low in progress, despite the current rally over the past 3 weeks. Continued lower volumes persist in this rally which suggest lower lows lie ahead.

The 3 year chart illustrates Gold dropping down towards support, despite the current rally, and it should continue lower with both oscillators dropping in support of lower prices.


Gold rallied strongly from Aug 2018 to its recent peak at $1347 in late Feb 2019, while US equities declined to the start of 2019 and then rallied strongly since: Illustrating their inverse correlation with gold now pointing down and equities up.


During this period US miners (GDX) have outperformed gold but have started to decline against equities since the start of 2019. The implication here is not favourable for gold because, despite the miners outperformance against metals, a necessity for the start of the metals bull market is outperformance against general equities. That is only likely to coincide with the US Fed shifting its stance from pausing to actually cutting rates.

The 12 month chart illustrates gold advancing back up out of the 1st support zone, with the support of both oscillators rising. Gold is well above 200-Dema in a 6 month long rally, but is still likely to drop down into the 2nd support zone as it completes the current 6 month cycle low.

The 3 month gold chart illustrates the short term counter rally as it bounces off support at $1276 in a developing bear flag.

South African Rand

The South African Rand has broken down to the bottom of the new rising wedge pattern, as both oscillators decline is support of a stronger Rand.
Much now depends on dollar movements which overrides everything. Also, political and economic fundamentals are not improving yet with South Africa and Eskom and much depends on Moody’s rating on 29 March.

HUI / Gold Ratio

The ratio continues in a 6 month long rally up to test resistance now only slightly higher up, after bouncing up off a confluence of 50- and 200-Dema. Both oscillators are tending sideways.

HUI Index

The HUI index itself is behaving in similar fashion, yet less positively with the beginnings of an ominous H&S developing. There is a bullish Engulfing candle however and probably more upside before likely testing support again. The oscillators are drifting sideways.

GDX US miners ETF

The GDX 12 month chart is similar to the HUI Index chart, and the commentary is identical.

DUST US Gold Miners Bear Index

The Dust chart and commentary is similar to the GDX chart, except in the opposite direction being a US miners bear index.

Silver

The 3 year chart continues to have a negative bias as silver continues to reverse up from support. It is likely to continue testing support as both oscillators continue declining. The confining parameters of the chart remain diagonal resistance and the multi-year base at $14, which hopefully will hold during the coming phase.

The 12 month chart illustrates silver starting to rally out of support at the confluence of the MAs. Both oscillators are turning up, but silver is still likely to drop back down to test both support zones as and when it penetrates below 200-Dema.

The 3 month silver chart illustrates the short term counter rally as silver moves up in a developing bear flag. Both oscillators are turning up as silver tries to push up through the confluence of MAs.

Gold : Silver Ratio

The gold / silver ratio is mixed as it continues to work its way up the bear flag in closing slightly higher on the week at 84.98. The general drift therefore is towards silver underperformance of gold which is negative for the whole complex.


Silver outperformance of gold is dependent on a breakout down through the bear flag and then the rising wedge pattern.

General Equities

US markets are enjoying a 13+ month high in equity investor optimism (Daily Sentiment Index at 90%) plus a bond market volatility collapse to a record low (Merrill Lynch MOVE Index 43.7) which presents as a significant confluence of impacts with investors holding markets aloft at extreme levels of euphoria. US equities abound in major indices non-confirmations which are typical of trend changes like the one in progress now.

Markets top and turn down with sentiment at extremes with bulls “all-in” with no more money allocated to buying. The market seems to be approaching such a point. The powerful worldwide b-wave rally off the December 2018 low is in with the Dow at 26250 and the next wave down has started to complete the c-wave (down to the region of 21000 in The Dow) to complete the abc pattern off the Oct 2018 high.

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Midweek Market 14 March 2019

Mar 14th, 2019 No comments

Executive summary

Global optimism is at a 30 month low, as reported by business conditions survey from IHS Markit. While the sentiment among developed nations globally continues to deteriorate, the US remains the most upbeat relative to the rest:
• In Europe sentiment has fallen to the lowest level since 2013, with the European manufacturing sector specifically the lowest since 2012;
• The UK has seen confidence drop to a record low, although mostly attributable to Brexit concerns;
• Japanese companies were the least confident globally as sentiment in the manufacturing sector fell to the lowest level since the survey began in 2009;
• In China, economic data released last week is drastically lower than forecast, and this contraction is likely to extend out into much of Asia, and nations participating in the Belt Road Initiative, over the next 3-6 months;
• In the US, the jobs report last Friday indicated 20 000 new jobs against a forecast 170 000. A year ago, Republicans in control of Congress suspended the cap on federal borrowing. The limit was automatically re-imposed on March 1st. Politicians now have a few months to hammer out legislation to raise the cap as the Treasury employs “extraordinary measures” to fend off default. The federal deficit is mushrooming once again. The 2017 tax cuts have taken a bite out of receipts at the IRS and economic growth has not met expectations. This year’s borrowing to fill the gap between government tax revenue and expenditures may reach a trillion dollars for the first time since 2012.

Notwithstanding, 2019 was going to be the year when the other big central banks joined the US Fed in “normalizing” interest rates in reversing the gigantic QE experiment of the last 10 years. Instead, they are all going back to aggressive easing, and the US Fed is following them. This is a seminal moment in the global financial and monetary system, because they are extending the life of a system that is failing.

Global economic growth and prosperity is not returning, and global sentiment is deteriorating:
• The EU has just announced a major policy reversal introducing a new stimulus package in the face of data which shows a sharp downturn in growth in the euro zone. This after it began tightening In September 2018;
• Japan pioneered QE and negative interest rates, but despite this, speculation began during 2018 that the Bank of Japan would start raising rates (to also start normalising). But it quelled that notion, last Thursday, stating it will continue its monetary easing measures;
• The US Fed, meanwhile, has been the only central bank actually tightening rather than just talking about it. And until very recently Jerome Powell saw the process continuing;
o During Oct 2018 he said he believed the US economy was a long way from neutral (rates neither advancing nor slowing economic growth). That was not well accepted and the stock market fell hard until late Jan 2019 when he took it all back by altering his view;
o But interest rates are only half the issue with money supply being the other half. Money printing is reflected in the Fed’s balance sheet as debt which has ballooned to $4.4 trillion, and unwinding this position from late 2016 at the rate of $50 billion a month has withdrawn substantial liquidity from the market. But it has only therefore shrunk by 10%, and now that is also changing;
o Because, in possibly Jerome Powell’s most significant statement to date, he said last week in a dovish tone that quantitative tightening would end sooner than expected, and that balance sheet shrinkage could be used as an active tool if the economy cries out for help;


What does all this mean? Several things, all of them alarming:
• 10 years into an expansion, with unemployment below 5% and officially reported inflation at the central bank target of 2%, the global economy is still too fragile to apply historically normal interest rates. The structural weakness implied by that is absolutely terrifying;
• If central banks can’t normalize monetary policy now, after 10 years of stimulation, they’ll never be able to. Just consider that for a moment. The old conception of monetary policy is over for the remaining life of the current global financial system;
• Since debt is soaring even in this late stage of the expansion with most people working and paying taxes, the financial headwinds that now prevent rate normalization will continue to strengthen. If 2% inflation is necessary to stave off collapse today, then 3% will be necessary shortly. Then 4% and so on, for the remaining life of this financial system;


How much time is left? Who knows. But it is now fairly safe to assume that this central bank course reversal has ushered in the final chapter.

US Dollar

The dollar index bounced down from resistance this week as it continues to move sideways within a bearish rising wedge formation, whilst the longer term trend towards weakness remains in place. This is still threatened by an Elliott Wave short term alternative option (rising to $100.00) which is, as yet, unconfirmed.

The Elliott Wave alternative count has it that the dollar is in a triangle pattern which could propel the dollar index towards $100.00, based on the completion of the (A)(B)(C) pattern. A decline below $95 will tilt the odds towards weakening and the formal count, whilst an increase above $97.20 will tilt the odds towards strengthening and the alternative count.

The 12 month chart illustrates the dollar bounce down from resistance, away from activation of the trigger for the stronger dollar count to $100.00. The negative divergence in still in place, and both oscillators are declining in support of further weakness.

The short term 3 month chart illustrates the strong bounce down from resistance to close at $96.51, but as long as the dollar remains above $95.824 potential for the stronger alternative to play out still exists.

The Cots data with continued dilation on the chart is supportive of dollar weakness.

Japanese Yen

The US$ / Yen currency pair dropped down from resistance, but still remains within the flag pattern. Both oscillators are declining which supports continued dollar weakness and Yen strength, and this will be accelerated by a downwards breakout from the flag.
Until that happens, the confines of the flag remain in place which means a stronger dollar plus the added threat of a sharply higher dollar, as previously described.

US Treasuries

The benchmark US 10 year Treasury yield is trending sideways to down for now as it becomes increasingly directionless. The US bond market yield bottomed in mid-2016 with increased yields since, but this has been corrupted since Nov 2018 in a pattern of lower yields. If yield increases from here then it will signal a continued collapse in bond prices. However, if yield continues to drift lower from here then it will signal a recovery in the bond market.

The Cots data for the US 10 year Treasury reflects on the chart as a bearish convergence which indicates lower prices and higher yields.

Gold

The 5 year gold chart illustrates the historic 6-month cycle lows, with the next cycle low in progress, despite the small rally over the past 2 weeks. it can also be seen that price movements since the start of 2018 have been accompanied by ever-lower volumes which does not auger well for price strength, and the gold price should now continue down to complete the current 6 month cycle low.

Gold is dropping down towards support, despite the small rally, and it should continue lower with both oscillators dropping in support of lower prices.
It is important to understand Gold’s fundamentals as it will help confirm the new bull market. Until now, Gold rallies have failed to make higher highs and higher lows because, although there has been improvement in fundamentals, the fundamentals have not turned bullish yet.
The technical trigger will be Gold and gold share outperformance of general equities which will likely lead to the fundamental catalyst of US Fed rate cuts. The start of rate cuts will indicate declining real interest rates which is the key driver of gold bull markets.

The 12 month chart illustrates gold dropping down into and back out of the 1st support zone, with both oscillators rising in support. Also, 200-Dema is at $1270 and this is providing additional support. Despite this, gold is still likely to drop down into the 2nd support zone as it completes the current 6 month cycle low.

The 3 month gold chart illustrates the short term counter rally as it bounces off support at $1276.

The gold Cots data is not clear cut, but the trend is bearish. The chart requires dilation for gold declines which is not quite apparent. However, the trend is in that direction with Large Specs (green) trending up (gold bearish) and Commercials (red) trending down (gold bearish). This adds credence to gold declines.

South African Rand

The South African Rand has broken up through the reducing wedge into weakness. In so doing, it is moving up into a new rising wedge pattern, which technically could be bullish eventually, as both oscillators begin turning down in support of Rand strength in due course.
Much depends on dollar movements which overrides everything. Also, political and economic fundamentals are not improving yet with South Africa and Eskom and much depends on Moody’s rating on 29 March.

HUI / Gold Ratio

The ratio has broken up to and turned down from resistance, creating a double top in the process. It is likely to drop lower to test support and both oscillators have increased to the top region of their range.

HUI Index

The HUI index itself is behaving in similar fashion, yet less positively. The rally closed below the previous high, having bounced up off support including 200-Dema, and both oscillators have not increased to the top region of their range. Nevertheless, it is likely to again decline to test support in the next period.

GDX US miners ETF

The GDX 12 month chart is similar to the HUI Index chart, and the commentary is identical.

DUST US Gold Miners Bear Index

The Dust chart and commentary is similar to the GDX chart, except in the opposite direction being a US miners bear index.

Silver

The 3 year chart continues to have a negative bias as silver drops down to and reverses up from support. It is likely to continue testing support as both oscillators continue declining. The confining parameters of the chart remain diagonal resistance and the multi-year base at $14, which hopefully will hold during the coming phase.

The 12 month chart illustrates silver increasing out of the 1st support zone during a short period of slightly outperforming gold as it moved back up above 200-Dema with both oscillators starting to increase. But it is still likely to drop back down to test both support zones if it penetrates below 200-Dema.

The 3 month silver chart illustrates the short term counter rally in penetrating back up above the MAs, together with both oscillators starting to turn up. But, further price declines are probable, as also indicated by the Gravestone Doji closing candle.

The silver Cots data, like, that of gold, is not clear cut. But the trend is also bearish. The chart requires dilation for silver declines which is not that apparent. However, the trend is in that direction with Large Specs (green) trending up (silver bearish) and Commercials (red) trending down (silver bearish). This adds credence to silver declines.

Gold : Silver Ratio

Silver outperformed gold this week with the ratio moving down to close at 84.71, because of the metals rally. Everything on the chart points to a further decline except for the Cots data which indicates the end of the metals rally, and a resultant increase in the ratio.

General Equities

The counter-trend rally in the US equity market is finally signalling a potential end, with a breakout in the bear flag. This is one of the first decline triggers (black circle), with the second decline trigger being penetration of the two earlier lows (red lines).

These triggers will soon provide confirmation of the Dow Jones in decline, as and when the Elliott Wave structure can be determined as 5 wave impulse declines and 3 wave corrective advances. We are nearly there.

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