Market Demons

Conclusion

World stock markets stabilised somewhat this week but ended mixed. The market event for the week was the gathering at Jackson Hole where Janet Yellen and Mario Draghi both defended post-crisis (2008) financial regulation that is blamed for stifling world growth. This was a shot across the bow of those who seek deregulation and the freeing up of markets to assist economic recovery. The continued monetary policy of managing economies by keeping interest rates low and printing money, which generates the enormous and increasing global debt, only moves the world towards continued debasement of currency values and nearer the edge of the next abyss.

The response to Jackson Hole was:

• A slightly weaker US$ which closed at $92.68, still in the region of strong support going back 2-3 years. This is still in a consolidation with no appearance of a relief bounce or of the continued bear trend, yet;
• Gold jerked up, then down, closing slightly up at $1291.08. It would appear the 6 month cycle low occurred in July and the next 6 month cycle is now in progress with what looks like a stronger bias, but price is in a consolidation phase up at long term resistance. The question remains – will this cycle move up or down?;
• World equity markets moved up initially and then down with the Dow closing in a bearish Gravestone Doji. The general bias seems to nevertheless still be up;

We still remain at a powerful pivotal position, and if the Dollar now drops down or increases up through the region of consolidation it will define the immediate fortunes of markets worldwide.

US$

The US$ is consolidating in the region of 200-Wema and strong support (green) stretching back 3 years. It is poised to either rally from here or continue to drop through support and resume the bear trend. The oscillators remain in pre-bounce mode suggesting a rally despite the Dollar’s weak long term appearance.

The short term chart illustrates the Dollar consolidation pattern resembling a double bottom. If it drops through support (green) this will be extremely bearish, and it needs to penetrate resistance (red) to turn bullish. A close above 94.06 at the previous high is required.

Gold

Gold relative strength is very bullish with price at long term resistance, closing the week at $1291.08. The 8 year cycle low and the new bull market support trendline (blue) are intact, with the threat of penetrating down through long term support (red) now virtually impossible. A decisive penetration up through resistance, $1300 or higher, is very bullish, and penetration down through the new bull market support, $1200 or lower, is bearish.

A powerful inverted head and shoulders pattern is developing in the gold data which will propel the gold price up when the neckline is decisively penetrated. The neckline will be breached at a price of approximately $1380 in the strike zone (red) and this will increase price towards $1800 in the target zone (green), an advance equal to the depth of the head.

The short term gold chart illustrates strong resistance at the triple top of $1300, having bounced off the region of support in the region of $1200. This pattern indicates the 6 month cycle low occurred in July at $1204. Gold is very bullish exhibiting strong relative strength and many commentaries are calling this the start of the next leg up in the gold bull market with the immediate future displaying parabolic price increases. However, the oscillators are high suggesting short term decline, and the US$ situation needs to first unfold as well.

We are now very close to unravelling this whole proposition.

Silver

The Silver price advance is not as rampant as gold and price remains within the consolidation area, before further movement up or down. The silver oscillators are still high suggesting down before up, and the price close on Friday ended with an indecisive Doji-type candle. Usually, silver reluctance against gold moves prices lower and not higher.

GDX US Gold Miners ETF

The GDX price data indicates a region of resistance between 23.60 to 23.96, and if this resistance is not penetrated then further price drops may occur before the final upward run begins. Price action at the friday close ended with a bearish Doji candle and the oscillators are still high suggesting down before up.

DUST US Miners Bear Index

DUST price action has been more severe than all the other metals and miners in the strong break through the bottom trendline to form a double bottom at the previous low. This, together with low oscillators, suggests a rise before further declines. Being a reverse bear indicator the implication is for a drop before a rise in the metals and miners data sets.

General equities (Dow Jones Industrial)

The Dow closed the week mixed at 10-/20-Dema with a bearish Gravestone Doji. It continues within it’s trading channel (green), hovering over the interim zone of indecision (blue). The bias is obviously up but with some bearish elements such as dwindling volumes, and continued MACD negative divergence. It will enter negative territory if it penetrates the bottom green trendline and the blue indecision zone. Price will then drop to the key level of 21 200 (red) which, if breached, will take the Dow down a further 1000 points through a meaningful correction.

It may of course just continue up through a period of world equity market sell divergences. The equity investment environment remains  fundamentally ‘unfriendly’ with interest rates having bottomed at all-time lows in mid 2016.

Conclusion

World stock markets continue to decline, the US$ consolidates in a weak rally from strong support, and gold penetrates it’s long term resistance trendline in a sporadic burst followed by retreat. The markets appear to be at crossroads with a variety of different potential outcomes.

The US$ is at long term support with the potential for an overdue rally which would depress precious metals that are poised to move up through long term resistance that will generate the next leg up in a long term bull market. However, there are reasons why this will be delayed until the Dollar rally is exhausted. The political chaos in the Trump administration is not assisting in any way and there are some troublesome events that lie immediately ahead such as negotiating an increase to the debt ceiling with the government running out of funds by mid-October.

Much depends on market action in the coming week/s in Dollar behaviour which is increasingly pressured by stronger precious metals supported by growing recognition that the debasement of money itself has started in earnest.

US$

The US$ weekly chart is consolidating just above the region of strong support (green) at the confluence of 200-Wema at the beginning of a potential rally. The energy is mild and together with Trump chaos it is debatable as to whether a rally materialises or whether support is penetrated and the bear trend resumes. The oscillators suggest a rally will happen which could take the Dollar up 3%-4% to the region of 50-Wema at 96 which would depress precious metal prices.

The short term chart illustrates the weak Dollar rally is more a consolidation than a rally although the consecutive higher lows indicate it is still technically a rally. The oscillators may well have exhausted their rise, but the Dollar needs to increase above 94.06 soon or risk penetrating down through support towards resumption of the bear trend.

Gold

Fluctuations and false breakouts abound in a somewhat bewildered market with expectation of a major breakout above $1300. But with a high of $1306.90 on Friday gold reversed again to close at $1291.60 on a bearish ‘shooting star’ candle which is now likely to go lower in the coming week. This was supported by high oscillators (still due to drop) together with GDX and DUST chart action also suggesting lower gold prices to come.

However, the position is somewhat more positive than before having penetrated up through the triple top, together with lethargic US$ behaviour, there is now the suggestion that although prices are due to drop they may hold above the region of support at $1200 and secure the 6 month cycle low at $1204 reached in July.

Much depends on market action in the coming week/s in Dollar behaviour which is increasingly pressured by stronger precious metals.

Silver

The Silver chart illustrates a price advance less rampant than gold (bearish) and a consolidation pattern building up in the region of 16.55 to 17.25. The oscillators are still high suggesting lower prices in the weeks ahead. A close above $17.25 will herald yet higher prices and below $16.55 yet lower prices.

GDX US Gold Miners ETF

Price action has been every which way in gapping up and then down, but closing Friday with a large bearish ‘engulfing’ candle which suggests lower prices in the coming week. A region of resistance lies to the upside at between 23.60 – 23.96 and major support is still at 21.00. The oscillators are high suggesting lower prices ahead.

DUST US Miners Bear Index

Price action has been every which way in gapping down and then up, but closing Friday with a large bullish ‘engulfing’ candle which suggests higher prices in the coming week that may extend to the upper trendline.

General equities (Dow Jones Industrial)

The Dow extended declines to close below 10-/20-Dema just above 50-Dema with the MACD negative divergence playing out. It is now reaching regions of some congestion and support but it needs to drop further to penetrate decisively through 21 200 to generate a meaningful correction.

Trump ‘euphoria’ is being replaced by Trump ‘chaos’ and virtually all world equity market charts indicate sell divergences. The equity investment environment is  fundamentally ‘unfriendly’ with interest rates having bottomed at all-time lows in mid 2016.

Conclusion

World stock markets started to correct down this week after the aggression between America and North Korea heated up, with precious metals rising significantly. The US$ dropped but closed the week higher than the previous low to remain technically in a rally. Much will depend on whether the rhetoric aggression normalises or aggravates to provide relevant direction to the various markets.

Equity markets are hopelessly overpriced given the fundamentals, except for excess liquidity which has propelled them to these levels, and this may well be the beginning of a major correction. Gold has been driven close to its previous high to close at $1294 which is again at long term resistance, while the US$ dropped down below 10-Dema to close at 92.96 which is again at the region of strong 2½ year support. We are again at a powerful pivotal position:

Will US / North Korea rhetoric subside and normalise market emotions to provide further elevation to world equity markets, or will increased aggression implode markets. Will the Dollar drop down further (potentially through the region of major support and propel gold up through resistance into the next leg up in the bull market, or will the reverse provide Dollar strength to a meaningful bounce and drop gold into the 6 month cycle low.

US$

The US$ is still at the region of strong support and 200-Wema, and could now rally powerfully towards 50-Wema over the next month or two. Strong oscillator signals in the slow Stochastic and MACD both suggest this should happen.

The Dollar closed down at 92.96 but above the previous low to remain technically in a rally. If the region of strong support (green) can hold then the rally can unfold to penetrate short term resistance and thereafter perhaps 200-Dema at about 97. If the level of strong support is violated then the rally will be delayed or the Dollar will resume its multi-year bear trend.

Gold

The gold price is forming a long term inverse head and shoulders pattern which, if penetrated decisively, will propel gold to $1800. The short term picture is more complicated and dependent on whether the short term US$ rally eventuates. If so, gold is likely to first move down to the 6 month cycle low.

Gold increased significantly this week to close at $1294 and in so doing created a triple top that marginally penetrated through short term resistance. US$ movement will force gold to either break up or down, and if the significance of a Dollar rally is sufficient then gold may break down through support at $1200.

GDX US Miners

GDX prices gapped up to close at 23.15 and penetrate the resistance trendline. This is an indication that gold miners are recouping some lost ground as well as a strong indication that gold will continue up and the Dollar down. The area of support is located further down at the level of $21.00.

DUST US Miners Bear Index

DUST is the corollary of GDX and prices gapped down to close at 26.34 and penetrate the support trendline. This supports the GDX proposition that gold will continue up and the Dollar down.

General equities (Dow Jones Industrial)

The Dow dropped 4% this week to close at 21858 below 10-Dema, with the oscillators dropping and MACD still illustrating negative divergence. The next moves will depend on whether the ‘nuclear war’ rhetoric aggression normalises or aggravates. Equity markets are hopelessly overpriced given the fundamentals, except for excess liquidity which has propelled them to these levels, and this may well be the beginning of a major correction. The key level of 21 200 needs to be breached to generate any meaningful correction.

Conclusion

World stock markets continue to edge up with some at new highs and they appear to have ‘ignited’ and begun to run. The US$ appears to have bounced and may be at the start of a rally that is long overdue, which in turn propelled precious metals and miners down into the close.

These moves seem to have been caused by the US jobs report which, if the bottoms and tops are confirmed, will see a strong interim Dollar bounce over perhaps a two month period before resuming its multi-year bear trend with metals and miners weakening through the process before resuming the second leg of a multi-year bull market.

US$

The US$ weekly chart rebounded strongly from the region of strong support and the 200-Wema, exhibiting a powerful bullish reversal candle in the process. There should be a 1 to 2 month rally from here, supported by strong oscillator signals in the slow Stochastic and MACD both due for a bounce.

The Dollar rally is interim as long as the region of strong support (green) is not penetrated, but once penetration occurs it will resume its multi-year bear trend.

The US$ daily chart closed above 10-Dema with a bullish engulfing candle enveloping 4 previous candles, in bouncing off the level of strong support. This long overdue rally should easily penetrate the short term resistance trendline (red) and perhaps even reach 200-Dema at a level of 97. The oscillators have begun turning up.

Gold

Gold is likely to drop below $1,200 during the Dollar rally, and it should remain above the December $1,124.30 low. It is critical that the 8 year cycle low at $1045 is not violated. Precious metals and miners will resume the second leg of the multi-year bull market once the Dollar resumes its long term bear trend which may take between 1 to 2 months.

The gold daily chart illustrates price turning down in a large engulfing candle that closed just below 10-Dema, supported by increasing volume and oscillators beginning to turn down. Final confirmation of a top is secured with a close below Friday’s close which will also then trigger lower prices to finally penetrate $1200.

Silver

Silver displays its normal more rapid drop compared with gold in closing with a large engulfing candle penetrating below 10-/20-/50-Dema, with the oscillators also turning down much quicker, together with rising volumes during this drop.

Silver should test the July low at $14.34 and even perhaps lower lows at $13.62 before bottoming in September/October.

GDX US Miners

GDX prices gapped down away from the resistance trendline to close below 10-/20-/50-Dema together with increased volume and oscillators turning down. This correction should see GDX penetrate below support at $21.00 and even $18.58 before bottoming, if the proposition unfolds as described.

DUST US Miners Bear Index

DUST prices gapped up to close above 10-/20-Dema together with increased volume and oscillators turning up. This correction should see DUST penetrate up through the trendline at $34.00 and thereafter at higher levels even reaching $45.00, if the proposition unfolds as described.

DSLV Velocity 3x inverse Silver ETN

DSLV prices gapped up to close above 10-/20-/50-Dema together with increased volume and oscillators turning up. This correction should see DSLV penetrate up even faster than DUST (being silver compared to gold) and reach the upper trendline, if the core proposition unfolds as described.

General equities (Dow Jones Industrial)

The Dow continues to creep up to new highs in unison with (and just above) 10-Dema. This pattern is likely to continue with abundant euphoria and algorithm trading support, but this type of pattern usually ends in a jolt which could test the key support level at 21 200.