Weekend Market Analysis 27 Aug 2017
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.
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