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Weekend Market Analysis 13 May 2018

May 13th, 2018

Executive summary

World equity markets all moved up this week, some to around the April highs and some, like UK and France, to near the all time highs. But the chart structures are all still intact for the bear market we are entering. Treasuries continued to move down with the US 10 year yield increasing slightly to 2.97%, all in a continued kind of breather space period. The next US Fed meeting is still likely to hike rates further but despite that it appears treasuries are set for a countertrend correction, which will bring yield down.

The strong US$ rally turned down (from $93.35) at strong resistance to close at $92.41, exactly where it closed last week. There are many indications that the rally may have run its course despite some strong contrary arguments. Gold hit a low at $1302.30 on Tues 1st May and closed the following day on a bullish Doji candle followed by increased prices to close this week at $1320.70. It is trying to confirm (or otherwise) whether that low was in fact a 6 month cycle low, but remains unconfirmed. To do this it needs to close above Friday’s high at $1326.30 and the US miners need to continue outperforming gold. Silver is also positioned to rally higher, and the gold / silver ratio continues to drop closing  at 79.13.



The US$ rally is in correction mode, but still needs to confirm a top. After dropping down to close at $92.41 (same as last week) it reversed up after a brief penetration of 10-Dema. To confirm a top the dollar needs 2 consecutive closes below 10-Dema, and if it does the same below 200-Dema (close at hand) it will confirm a significant top. Very short term support is at 92.39 – 92.22.

The oscillators are turning down in support of further dollar downside.




Looking more closely at some of the powerful forces impacting on any further dollar strength, we find a whole range of factors in that region of strong resistance, including:

  • 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;
  • Bearish ‘Shooting Star’ closing candle;

These are all illustrated in the chart below, encouraging the dollar rally to end here.




The long term 40 year chart illustrates the cycles in the dollar pattern of peaking in ever lower 16 year cycles (red) and bottoming in ever lower 16 year cycles (blue). This indicates a dollar value in the lower 60s in the year 2024, with of course correspondingly higher gold values.




US Treasuries

The weekly 5 year chart of the benchmark US treasury 10 year yield has 2 breakouts from the H&S pattern and seems underway to rise further towards 5%. However, there may well be a countertrend correction soon because of high level oscillators that are moving sideways to down, and look somewhat threatening.





Gold is looking positive with a potential 6 month cycle low, although still unconfirmed. Price moved down from 50-Dema on Friday and this may cause a further price drop before confirming the low. If price drops below $1310 then it will indicate a lower price later in May. However, if it increases above Friday’s high of $1326.30 then this will confirm $1302.30 as the 6 month cycle low.

This may be the trigger to finally propel gold through the long term neckline at $1375, and higher.  The oscillators are turning up in support.




The longer term 3 year chart remains strong and illustrates the diagonal supports and previous lows are holding, in a chart structure of higher highs and higher lows. Once, and if, the 6 month cycle low is confirmed this will lead to more aggressive price increases.

The oscillators are dropping however but the Slow Stochastic may be close to a bottom.




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




HUI / Gold Ratio

The HUI / Gold ratio is positive illustrating the US miners are outperforming gold. The breakout from H&S has resumed and the positive bias in the chart needs to continue through 0.1406 to gain real traction in the miners. The ratio needs to penetrate 0.1388 to remain positive and must not fall below support at 0.135 otherwise the diagonal support will fail, suggesting further downside.

The Slow Stochastic is turning up and the MACD is holding up.




GDX US miners ETF

GDX has a positive bias and has moved back into resistance (green). To advance energetically from here GDX needs to clear 1st and 2nd targets at $23.15 and $23.32 beyond which price is likely to move up quickly.

The oscillators are rising in support.



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

The oscillators are positive.




DUST US Gold Miners Bear Index

DUST is maintaining a negative bias with 7 consecutive closes below 10-Dema. Even 200-Dema is finally moving into the chart space. All this presupposes continued strength in US gold miners. The oscillators are dropping and supportive.





The silver price is increasing again although it stalled at 200-Dema which might delay a while. Higher prices look to be coming and the rise from the low at $16.07 has introduced the potential of a 6 month cycle low, still to be confirmed. Price must not fall below $16.33 which will reverse the rally.

The oscillators are rising and supportive.




In the longer term 3 year chart the bullish reducing wedges remain intact, and if price can penetrate the target breakout box (blue) it is liable to generate strong price gains.

The slow Stochastic is turning down, although reasonably low, while the MACD continues its 18 month long process of honing to a point which  suggests a strong breakout when it happens.




Gold : Silver Ratio

The ratio is below 80 and continues to drop down from the confirmed double top in closing the week at 78.84. It needs to breach the bottom line of the upward-sloping reducing wedge which is likely to complete at a level of 77.0 – 78.0 soon. The breakout from the year long pattern 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

The Dow Jones continues to correct up in a holding pattern that has now increased to the April high, forming a potential double top in the process. The pattern is still bearish and may still not have completed the upward correction. The oscillators have not yet peaked suggesting more upside to come.




Volatility, as measured by the VIX, is drifting lower slowly and has now penetrated the previous low at 13.4. This suggests further upside in the Dow in the short term.








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