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Weekend Market Analysis 19 Mar 2017

Mar 19th, 2017

The US increased rates this week by 25 basis points with the stated intention of probably doing so again this year. Surprisingly, the US$ dropped and precious metals increased, as the rate hike was already fully discounted.

Equity markets responded positively initially but later drifted as the knowledge sunk in that increased costs are not equity friendly and that they do in fact trump euphoria. Precious metals and miners responded positively but the miners turned down at the week end, threatening to once again create a bearish divergent top with metals.

US$

The US$ continues forming its threatening ‘head & shoulders’ pattern and closed the week down at 100.11 with the neckline closing in at 99.25, evidently in response to already fully discounting the rate hike. This is bullish for precious metals and bearish for equity and bond markets, and should the ‘head & shoulders’ neckline be penetrated then the US$ index is likely to drop further to about 95.

Bond Market

The bond market bottomed in Jul 2016 as yields began to move up worldwide, confirming that interest rates have bottomed and that the cycle has turned up. The on-going threatened intentions from the US Fed to increase rates have finally manifested, but the US equity market continues to move up and even their treasury yield increases have stalled. After an initial increase during the 6 months Jul-Dec 2016 treasury yields have moved sideways while the US$ has moved down over the same period. The treasury yields internationally continue to edge up, but not the US.

Gold Price

The gold price turned up after the US rate hike and has moved further from the next key support level at $1179.70. It is now in the vicinity of the 200-Dema with positive momentum.

The gold price has moved up through breached support at $1220 and closed the week above 10- /20- /50-Dema at $1230.20. Whilst positive momentum is moving gold away from lower support levels it is important to note that US miners in the XAU chart turned lower at the week end which could develop into another bearish divergent top with metals. The gold price oscillators are all in mid-range.

 

Silver price

Price has turned up after the US rate hike this week to close at $17.41, marginally above recent support and well within the longer term megaphone pattern.

 

If price drops through this key support at $16.60 then this is likely to lead to much lower prices, magnifying the importance of previous lows at Dec 2016 and thereafter Dec 2015.

The short term silver chart indicates the turn up after the US rate hike penetrated resistance at $17.37 (just) and only closed above 10-Dema, as opposed to gold which closed above all 10- /20- /50- Demas. Both silver and gold increases were along with reduced volumes. The threat of a divergent top with US miners applies equally also to silver.

US Gold Miner Index (XAU)

US miners (in the XAU index) turned up after the US rate hike but moved lower at the week end to close below support at $84, and threaten yet another divergent top with the metals.

US General Equities

US general equities, as embodied in the Dow Jones Ind Ave, are taking a breather in drifting sideways. Open gaps were created in the hectic advance and these probably all need closing with the first larger one already achieved and the second smaller one yet to be closed at about 20650.

Despite falling volumes during the hectic price advances the slight decline now is with increasing volumes. All other indications are for the price advance to continue except for the interest rate cycle which has turned up and is equity unfriendly.

Conclusion

The US increased rates this week by 25 basis points with the stated intention of probably doing so again this year. Surprisingly, the US$ dropped and precious metals increased, as the rate hike was already fully discounted. The US$ therefore continues forming its threatening ‘head & shoulders’ pattern and should the neckline be penetrated then the index is likely to drop further to about 95.

The bond market bottomed in Jul 2016 as yields began to move up worldwide, confirming that interest rates have bottomed and that the cycle has turned up.

Gold and silver prices turned up after the US rate hike and positive momentum is moving them away from lower support levels. Both did so with reduced volumes, and the threat of a divergent top with US miners still applies as US miners (XAU index) turned lower at the week end.

Equity markets responded positively to the rate hike initially but later drifted as the knowledge sunk in that increased costs are not equity friendly and that they do in fact trump euphoria.

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