Home > Currency, Equity, Gold > Weekend Market Analysis 27 May 2018

Weekend Market Analysis 27 May 2018

May 26th, 2018

Executive summary

World equity markets moved sideways to down this week as we remain in this kind of breather space period, with the chart structures still in the early stages of the bear market we are entering. Treasuries moved up in what looks like the start of a countertrend correction with the US 10 year yield dropping sharply from a high down to 2.93%, assisted somewhat by the political ‘deck chair’ re-arranging of North Korea summit agendas.

The strong US$ rally took the currency to a close of $94.13 which some argue will still rise to $95.15 after a correction. But there are strong resistances here with a whole range of competing currencies on strong buy signals against the dollar. These include, amongst others, Euro, UK Pound, Aussie $, Swiss Franc, etc., which suggest this is the end of the dollar rally. Gold, on the other hand, hit a low at $1281 which could now be the 6 month cycle low which, once confirmed, is likely to take the price up through resistance beyond $1400. The whole precious metals complex is once again looking positive with US miners and silver outperforming gold (which is bullish) in a leadership role switch. The jury is still out, but US$ movement in the next weeks is critical. Gold closed at 1301.54 and silver at $16.50.

 

US$

The US$ is ready for a correction after a strong run, but still needs to confirm a top. The strong US$ rally took the currency to a close of $94.13 which some argue will still rise to $95.15 after a correction. But there are strong resistances here with a whole range of competing currencies on strong buy signals against the dollar. These include, amongst others, Euro, UK Pound, Aussie $, Swiss Franc, etc., which suggest this is the end of the dollar rally.

The dollar has enjoyed 27 consecutive closes above 10-Dema and the suggestion of a top can only occur after consecutive closes below 10-Dema. The oscillators are at the top suggesting further rises and the question is whether such rises will take the price all the way to 95.15 or whether resistance is strong enough to prevent this.

 

 

 

The longer term 14 year chart illustrates the dollar increase up through the moving averages back towards the earlier penetration of the 1st stage decline target (dotted red) with little resistance all the way up towards 100 and beyond. It is probably only wave counts that can determine the next stage in US$ movement, with all the profound impact such movement will wreak on the financial market, commodities, etc.

 

 

 

US Treasuries

The benchmark US Treasury 10 year yield is patently underway in rising towards the next increase tranche (probably 5.0%), but is due a countertrend correction soon. This has probably started and can be seen in the drop towards the red diagonal, and which may still extend further down to 2.7% and beyond. The oscillators are turning down in support of this.

 

 

 

US Treasuries and Gold

The relationship between gold and the US Treasury 10 year price is reflected in the chart below with rising bias in strong gold / weak bond price, and reducing bias in weak gold / strong bond price. The chart is bullish but stalling in the tail with current weak gold and strengthening bond value (lower yield). This will create a larger right shoulder in the H&S

The chart will strengthen as gold increases in price and as the 10 year bond value decreases once yields start to increase again.

 

 

 

Gold

Gold is looking positive with a potential 6 month cycle low at $1281, which will be confirmed if price can close above $1308 and breach the diagonal trendline (blue). Much depends on price movement in the dollar next week and whether gold can breach 200-Dema and stay above it.

The whole precious metals complex is once again looking positive with US miners and silver outperforming gold (which is bullish) in a leadership role switch. Confirmation of the 6 month cycle low is positive and will energise the sector to push price through the long term resistance neckline to a new gold breakout, also assisting miners and silver to break their range-bound patterns.

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 higher prices.

 

 

 

HUI / Gold Ratio

The HUI / Gold ratio is positive illustrating the US miners are outperforming gold. The next requirement is to breach 0.1406 which will add traction to the increase. A 2nd H&S is created as that level is breached and this will all add substantial impetus to US miners and the whole complex.

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

 

 

 

GDX US miners ETF

GDX has suffered a setback in stalling at the diagonal trendline (black) and in the process creating lower highs. To start advancing energetically it needs to breach the diagonal and to start penetrating each previous high.

The oscillators are rising in support, and this can be achieved now.

 

 

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.

 

 

 

Silver

The silver price is increasing again, but has again stalled at 200-Dema. But higher prices are coming and it appears silver’s 6 month cycle low occurred 3 weeks earlier than gold’s, as it continues to outperform gold. 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. Price is still stalling at 50-Wema.

Both oscillators are positive in support, and the MACD continues its 18 month long process of honing to a point which all has an upward bias suggesting a strong breakout when it happens.

 

 

 

Gold : Silver Ratio

The ratio continues to drop further below 80 and closed at 78.79, very close to breaching the bottom line of the upward-sloping reducing wedge. The breakout from the year long pattern is likely to happen soon and will 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 countertrend rally is still in progress, having peaked at 25086 earlier in May and closing the week softer at 24753. It has been rising repeatedly to around the primary bull market resistance line, although dropping down to varying levels immediately after each visit. This holding pattern can of course continue but begs the question of whether this leads to a major advance or major decline.

 

 

 

Volatility, as measured by the VIX, is also in a drifting or holding pattern just below 200-Dema. This also suggests the holding pattern in the Dow is likely to continue a while longer.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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