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Weekend Market Analysis 22 Oct 2017

Oct 21st, 2017


The US senate voted on Thursday to approve a budget blueprint that paves the way for tax cuts that will add up to $1.5 trillion to their Federal deficit over the next decade. This will of course further inject massive liquidity into their market and the Dow Jones shot up accordingly to close the week at 23328.

Thursday was also the 30 year anniversary of Black Monday (19 Oct 1987) when the Dow dropped 20% on the day. The euphoria has not been replicated by the other international markets which remain elevated, mostly displaying negative divergences, although higher prices will persist in the US markets for a while yet.

The US$  drifted into mid-week and then rose into the close at 93.58 with the tax vote, but it still remains below the critical 94 level. Gold moved lower this week but silver and the gold miners were somewhat less bearish, highlighting the poised nature of the markets at the moment. The pending US rate hike in Dec is fully priced into the markets already, but on balance gold is likely to falter further while general equities increase.



The US$ recovered some lost ground this week to close at 200-Wema, still below key resistance at 94, and is still poised to rally up to 50-Wema or continue dropping through support to resume its bear trend. The oscillators are moving up to support a rally. If the Dollar breaks up through 94 decisively then it will trigger an inverted head and shoulders pattern and rise further towards the 96-97 level.




The Dollar daily chart illustrates the increase to short term resistance (diagonal red) with the head and shoulders neckline slightly higher at 94.2. Penetration through these levels could take the Dollar higher by 3%-4%, and the oscillators are hovering at normal to move either way, in support or otherwise.



US$ / Jap Yen currency pair

The US$/Jap Yen currency pair reversed up this week, as the Dollar increased, and are approaching a region of resistance at 114.0-114.50. The oscillators appear to support the move up to resistance levels, accompanied by weaker gold prices, with any rebound down accompanied by stronger gold prices.





The long term chart illustrates the gold price re-testing the breakout through long term resistance, with the new bull market support line much lower down.



The gold daily chart illustrates the price retreat this week closing with a bearish Engulfing candle which suggests more downside to come. The move down closed the gap which formed in the previous week, which needed doing before any price advance could commence. The oscillators are hovering at normal and, together with silver and gold miner price action, the gold price is in a holding position which has perhaps retarded progress toward $1400 until a later stage.




GDX US miners ETF

GDX price retreated this week and is hovering between 50- and 200-Dema, also in a holding position, like gold. The oscillators are hovering at normal with little to suggest progress direction either way, although caution is perhaps the better investment choice for now.




DUST US Miners bear index

The inverse picture in the US Miners Bear Index (Dust) indicates a similar situation to GDX, with price hovering at 50-Dema and the oscillators hovering at normal.




Silver moved down less than gold (positive) and is hovering at the confluence of both 50-Dema and 200-Dema, below a region of resistance. It needs to close higher than $17.75 before testing the previous high at $18.32. The oscillators are hovering at normal.



General Equities (Dow Jones)

There is nothing new in international equity markets which continue to advance, with ever smaller increases, except for US markets which surged on their tax vote. The elements in the Dow chart remain hostile:

  • Rising wedge formation going back 1 year (bearish);
  • Reducing volumes going back 2 years (negative);
  • Sky-high oscillators which have to plummet (negative):
    • Slow Stochastic range is normally 20 to 80, and is now above 99;
    • MACD range is normally -200 to +200, and is now 573;
  • MACD is in a negative divergence with the Dow going back 6 months, despite the sky-high MACD number of 573;
  • The Dow Jones Ind index is again in a negative divergence with the Dow Transport index and Dow Theory states that the market will drop when this is so;



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