Weekend Market Analysis 18 June 2017
Conclusion
The US$ is seemingly under pressure but is actually building a large consolidation base from which a strong rally is likely to emerge. The US Federal Reserve increased the rate 25 basis points on Wednesday which set the tone for the next investment period, despite many troubling paradoxes. The slew of less than good US economic indications during the last period did not deter the rate decision, with yet another indicated during the year.
In spite of this the US$ only reacted insipidly and finished the week pointing down against the Euro, Jap Yen, and even the Pound (despite developing chaos in the UK). The strong breakout from consolidation is supported by behaviour in the metals and miners data which continue towards a 6 month cycle low, although somewhat delayed by another 4 to 6 weeks into the July to August period, before the next leg up in the bull which will follow.
The equity markets continue peaking in the face of the interest rate cycle having turned up.
US$
The US$ is seemingly under pressure but is actually building a large consolidation base from which a strong rally is likely to emerge. The US Federal Reserve increased the rate 25 basis points on Wednesday which set the tone for the next investment period, despite many troubling paradoxes. The slew of less than good US economic indications during the last period did not deter the rate decision, with yet another indicated during the year.
In spite of this the US$ only reacted insipidly and finished the week pointing down against the Euro, Jap Yen, and even the Pound (despite developing chaos in the UK). Nevertheless, a strong breakout from consolidation is supported by behaviour in the metals and miners data which continue towards a 6 month cycle low.
Note also that there is a supportive MACD breakout in the bottom portion of the chart.
Gold
Gold has reacted down from long term resistance and technical analysis has for some time now suggested a price drop into a 6 month cycle low which has not yet occurred because of the persistently weak US$. A long term view in the 40 year chart below reveals one reason why this is so and why it is still to happen, before the next leg up in the bull market which will follow.
Note the similarity in the bear markets following the gold peaks in 1980 and 1996 which each took 311 and 312 weeks respectively to breakout through the resistance trendlines, to the current bear market which has thus far only taken 301 weeks. To complete similar retracement percentages the current position requires further price reduction over the next period with price likely to complete the 6 month cycle low sometime during Jul-Aug.
The short term 7 month chart indicates gold now dropping towards the short term cycle trendline which it should penetrate. The 6 month cycle low target is in the region of $1200 which is likely to be achieved in the Jul-Aug period.
US Miners
The GDX US miners chart indicates a massive engulfing candle during the week which will induce further drops toward support at $21.00. This is likely to inspire a short term bounce followed by further drops below support. This will match a further drop in the gold price, or if not, will then increase divergence between metals and miners.
DUST US miners bear index
The DUST chart indicates a massive engulfing candle during the week which will induce further rises toward resistance at $37.00. This reflects exactly the reciprocal situation to gold and gold miners, and therefore supports the gold 6 month cycle low proposition.
General Equities
The equity markets continue peaking in the face of the interest rate cycle having turned up:
- When interest rates are at the top of a cycle it is the best time to invest – like at the beginning of the 1980s;
- When interest rates are at the bottom of a cycle it is the worst time to invest – like now;
Add to that the fact that debt is massive and out of control, and that economic growth is prevented because of that. These are serious fundamentals that all point to a huge asset bubble in the markets that effect the stock market, the bond market, and the property market.
How do we recognise an asset bubble? One way is to analyse a specific economic data file produced by the US Federal Reserve ST Louis office (FRED) – “Net Worth as a Percentage of Disposable Personal Income”
This is what the blow off stage of a stock market bubble looks like.
This percentage reached:
- 610 just before the 2000 Tech bubble crash;
- 650 just before the 2007 global financial crisis;
- 660 just before the next crash – it is called the Everything Bubble;
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