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Weekend Market Analysis 6 May 2018

May 6th, 2018

Executive summary

World equity markets moved sideways to slightly up this week and treasuries did likewise with the US 10 year yield dropping to 2.95%, all in a kind of breather space period. During the week the US Fed held rates steady and the US jobs report indicated 164 000 new jobs (lower than forecast) as world economies continue to limp on.

The US$ has rallied strongly and has now encountered strong resistance to close at $92.41. Gold was weaker but recovered slightly to close at $1314.83. Dollar resistance is strong from a number of different forces and this has provided a relief period for metals and miners in the short term. The struggle now is between a yet stronger dollar or yet stronger gold, and this may play out differently in the next month, next 6 months, and next year.



The US$ rallied strongly into major resistance (green) stalling at the 2nd resistance target of $92.41. The rally has been vigorous and is due a correction which is supported by a number of forces detailed in the next number of charts.




The long term picture in the 14 year chart illustrates the dollar rise to a strong resistance line at $92.4 which is at 200-Dema and the bearish ‘dead cross’. This region is a confluence of powerful resistances which may well end the rally, described in more detail in the next chart.



At this point the dollar has reached:

  • Nov 2017 low (black line);
  • Fibonacci retracement of 61.8% from the low point (blue);
  • Both 200-Wema and 50-Wema;
  • Dead cross where these 2 MAs diverge;

These are all powerful forces encouraging the dollar rally to end here or at least correct down strongly.



US Treasuries

The benchmark US treasury 10 year yield has penetrated the psychologically important level of 3.0% and is now correcting down slightly. The move towards the next target of 5.0% is therefore underway, and the oscillators have turned up in support.

However, this has been a strong rally and a corrective drop could be expected in the interim.




US Treasuries and Gold

The relationship between gold and the US Treasury 10 year price is reflected in the chart below as strong gold price and weak bond price. The chart is bullish but stalling in the tail with current weak gold.

It also illustrates the positive relationship between the gold price and interest rates, in that as gold increases so does interest rates (being the inverse of bond price).





Gold is bouncing up off 200-Dema and technical support levels in the chart (red). It needs to increase above $1317.40 to confirm the bottom with consecutive closes above 10-Dema thereafter. This could be an important turning point as a 6 month cycle low (as the dollar corrects down), as described in the following chart.

The oscillators are turning up in support.




The longer term 3 year chart remains strong with support lines all holding, and volume declines coinciding with price declines (bullish). This could well be a new 6 month cycle low in terms of timing (and the catastrophic state of the world monetary system), but the oscillators are dropping and not sufficiently oversold. On balance therefore, it is more probable that the true cycle low occurs later this month.




The yet longer term massive pentagon base pattern continues to hold as it prepares for penetration of the neckline at $1375.00 which, once penetrated, will propel gold up by the depth of the head to $1800.00

The next 6 month cycle low may of course threaten the pattern.




HUI / Gold Ratio

The HUI / Gold ratio illustrates the relationship between US gold miners and the price of gold. The deterioration (to a low in Mar 2018) has improved recently to an actual H&S breakout, which unfortunately proved false. The positive bias with moving averages crossing over needs to exceed 0.1406 to gain traction, and penetration of the diagonal support line (blue) will be negative.

The oscillators are not positive though.




GDX US miners ETF

GDX itself is more positive than the HUI / Gold ratio with oscillators turning up. The short term target is $22.80 and the previous high is at $23.32. The US gold miners are ready to accelerate up after the gold 6 month cycle low is confirmed.



The longer term GDX chart illustrates how miners are still range bound. Much depends on timing of the gold 6 month cycle low point, and the gold / silver ratio.

The oscillators are positive.




DUST US Gold Miners Bear Index

DUST is maintaining a negative bias despite some recent strength, which suggests a lower US$ and higher metal prices. The oscillators are dropping and supportive.





Silver has re-established the price mould midway between support and resistance over the last 3 months. Volume collapsed again during price declines (bullish) and COTs remain bullish, pointing to a price increase in the short term.

The oscillators are supportive in turning up.




The bullish reducing wedges over the last 2 years remain intact, and the bullish Dragonfly candle at the close promises some upside.

The slow Stochastic is rising and the MACD is continuing an 18 month process of honing to a point which adds credence to the notion that the substantial support base has price highly ‘coiled’ to generate powerful increases from here.




Gold : Silver Ratio

The ratio has dropped below 80 again and is poised to drop further. Breaking 77.0 will provide the necessary breakout below the year long upward sloping rising wedge. This is likely to alter the nature of the whole precious metals complex in driving prices higher.

Both oscillators are pointing down in support.




General Equities

World equity markets moved sideways to slightly up this week in a kind of breather space period. The Dow keeps bouncing up off 200-Dema which is proving to be strong support, but once it is penetrated it will promote a serious sell-off. The Dow continues to trace out a series of down waves which should eventually lead to the strongest decline since the January 26 top, in what should be a long-term decline.

The oscillators are dropping down in support of price declines.





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