Weekend Market Analysis 31 Dec 2017
Executive summary
World equity markets continue to move sideways with a few exceptions like the UK, while in the US the Dow Jones continues to form a micro-topping pattern. But the big news this week is the accelerated decline in US$ value and breakouts in gold and the precious metals complex generally.
The US$ index has broken down through support to close at $91.83 and looks set to test critical support at $90.99, below which it confirms its bear trend which will take it down much further. Gold broke up above $1300 to close at $1302.76 which confirms the low at $1238, and silver broke up above $17 to close at $16.93 which confirms the low at $15.63.
There will no doubt be pullbacks from these levels, in the nature of markets. One negative impact is the miners are not racing ahead yet and this may assist a pullback, but the die is cast for a positive 2018. Bond market yields steadied this week, taking some pressure off an inevitable general equity collapse at some stage in 2018.
US$
The US$ index broke down through support decisively this week and now has to cope with testing critical support at 90.99. If this level is breached it will confirm the Dollar bear market with much lower levels to come.
The Slow Stochastic is very low and a minor correction is possible although the MACD suggests otherwise.
One of many different US$ long term charts is the 30 year chart displayed below. This illustrates substantial devaluation over the next 5 years which will see a Dollar value some 30% lower than present values at an index value in the low 60s.
Observe the negative divergence that occurred during years 2000 and 2001, and as this is a powerful indicator it produced a drop in Dollar value of 40% over the following 5 years. It has now been repeated, almost exactly, during the years 2015 and 2016, and will also result in a substantial drop in Dollar value over the next 5 years, after penetrating down through 200-Wema in both cases.
This will result in a US Dollar Index value in the region of 62 sometime around the year 2023/4.
US Treasuries
The short term 1 year chart of the US Treasury 10 year yield steadied this week, breaking back below the H&S neckline to a yield of 2.40% from 2.48%. The trend continues up however, in line with increasing inflation as reflected in the very weak Dollar, and will again breach the H&S in time.
As inflation increases, so treasury yields increase, and as yields increase so the bond bubble will rupture which in turn will collapse equity markets. Steadied rates this week therefore take some pressure off an inevitable general equity collapse at some stage in 2018.
Gold
Gold broke up through resistance this week to confirm the bottom at $1238.30 which is also now well above 200-Dema. The Slow Stochastic is topping out which suggests a correction soon although the MACD is still rising strongly.
The medium term potential for gold remains very strong as illustrated in the massive pentagon-shaped base pattern which, once price increases above $1380, will catapult gold to $1800 later in 2018.
GDX US miners ETF
GDX, representing US gold miners, has broken through resistance above the previous high at $22.98 and is poised to attack the Oct high at $23.76. GDX is underperforming gold though and this has a negative impact on price increases going forward. Also, the Slow Stochastic is topping out and this suggests a correction soon although MACD is still rising.
DUST US Gold Miners bear index
The inverse picture in the US Gold Miners Bear Index (Dust) indicates the exact opposite of the GDX chart. DUST has dropped well into the region of support (red) but shows signs of a correction with the Slow Stochastic bottoming out although MACD is still dropping.
Silver
Silver broke up through resistance this week to confirm the bottom at $15.63 which is also now well above 200-Dema. It is now free to attack the Oct high at $17.50, but the Slow Stochastic is topping out which suggests a correction soon although the MACD is still rising strongly.
Gold : Silver Ratio
The ratio dropped strongly for the last 16 trading days but is now approaching 200-Dema and previous lows lower down. The reducing gold / silver ratio represents rising metal prices and is bullish, but much further progress is necessary to even approach the previous low at 73.5. The oscillators are dropping which suggests a lower ratio for a short while yet, before a correction sets in.
General Equities
Developments in the bond market suggest lower equities soon, but in the meantime prices may well grind higher. The Dow Jones seems to be forming a micro-topping pattern and we look at this in an ultra short term 3 month chart.
The micro-topping pattern includes a double top within a negative divergence with the Fast Stochastic. The MACD indicates a breakdown which suggests lower prices in the short term.
All this is bearish for the Dow which might nevertheless break up higher with the support of the very much weaker Dollar.
Recent Comments