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Weekend Market Analysis 3 June 2018

Jun 2nd, 2018

Executive summary

World equity markets mostly moved down this week with a stronger Friday as they continue to evolve in a broad cluster at or below the main historic bull market resistance trendline. The general equity chart structures worldwide are still in the early stages of the developing bear market. Treasuries are moving up in a countertrend correction with the US 10 year yield dropping sharply from the high at 3.11% to 2.77% but, with the chaos in Italy abating and the positive US jobs report on Friday, moved back up to 2.89%. Donald Trump chose the moment just before the release of the jobs numbers to slap steel and aluminium tariffs on the US closest allies, knowing the equity markets would rally anyway on Friday.

The US$ rally topped out and closed lower at $94.17 with further weakness to come, although this could be followed later by a yet stronger dollar. This has gold looking stronger after the 6 month cycle low at $1281 despite closing lower than recent prices at $1299.30, with further strength in the whole complex likely in the next period. There is a fine balance now between a breakout with higher prices to follow on the one hand and a continued sideways movement for the whole complex on the other.

 

US$

The US$ has turned down from its recent peak although with still no confirmed top. It still needs at least 2 consecutive closes below 10-Dema and is sitting at the moment on 30 consecutive closes above 10-Dema. It is nevertheless likely to move lower although is equally likely to thereafter move higher again.

The oscillators are dropping in support of a lower dollar in the next period.

 

 

 

The longer term 14 year chart illustrates the dollar increase up to resistance at the 95 level and the likelihood of moving lower next. The chart, as well as a number of other long term charts, illustrate the next moves to be down for the time being.

 

 

 

US Treasuries

The benchmark US Treasury 10 year yield is patently underway in rising towards the next increase tranche (probably to the 5.0% region), but is in progress with a countertrend correction at the moment. This reversed slightly on Friday but has probably not completed yet, and is likely to at least penetrate the red horizontal at 2.72%.

The oscillators are dropping in support of further reduction in yield, but the long term trend to a collapsed bond market is in process.

 

 

 

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

The gold price has increased from the low at $1281 which soon will probably confirm the 6 month cycle low. Prices need to break up through the area at about $1310 after which a run up through 200-Dema towards the long term resistance neckline at $1365 is likely. This will propel gold up towards $1400 and perhaps even beyond, but of course much depends on the US$.

The whole precious metals complex is therefore looking positive despite a lower close on Friday at $1299.30, and the oscillators are in support. Final confirmation of the 6 month cycle low and a thrust up will re-energize the complex and assist miners and silver to break their range-bound patterns.

 

 

 

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 mixed and probably more time is required for this to all unfold positively.

 

 

 

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

 

 

 

HUI / Gold Ratio

The HUI / Gold ratio is still positive but the bias is stalling, and needs to exceed 0.1406 to generate real traction in the miners. A strong H&S pattern is developing (No. 2 in the chart) and once this is activated it will generate impetus to the US gold miners, but the oscillators are stalling which will obviously require more time to develop.

 

 

 

GDX US miners ETF

GDX is moving sideways although it is holding the lows at $22. It needs to start clearing the diagonal resistance line (black) and some previous highs.

The oscillators are rising in support, and this can start happening now.

 

 

The longer term GDX chart continues to illustrate the range-bound nature of the chart structure, and the oscillators are slightly mixed at the moment which suggests more time is required.

The oscillators are positive.

 

 

 

DUST US Gold Miners Bear Index

DUST is maintaining a negative bias as it moves sideways which has a positive influence on the miners. The oscillators are moving sideways to down which supports further drops in DUST and increases in US miners.

 

 

 

Silver

The silver price is still trapped in sideways mode but appears to have bottomed in a 6 month cycle low earlier than gold which is positive. Closing below the red rectangle at about $16.30 will void the positve bias, but this seems less likely.

The oscillators are mildly 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.

The oscillators are mixed at the moment, while 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.

 

 

 

USLV US Silver Miners Bull Index

The US silver miners USLV (bull index) is positive for silver, in that whilst it maintains a slight negative bias it is doing so with positive divergence from the oscillators. This indicates the previous highs are likely to be penetrated before the previous lows, with higher silver prices. This is strong for silver and strong for the gold / silver ratio.

 

 

 

Gold : Silver Ratio

The ratio continues below 80 and below the earlier confirmed double top. It closed a little bit up at 79.03 but actually fleetingly broke the bottom line in the upward sloping reducing wedge pattern. This is all positive although the oscillators are slightly mixed.

The target is to drop down to the 77 level.

 

 

 

General Equities

The Dow Jones cluster below the primary bull market resistance line continues to move lower slowly. The countertrend rally peaked at 25086 in late May and it closed the week at 24635. If the Dow declines below 24247 it will signal significant moves lower, towards the next zone of support between at 23600-23300. This is all indicative of the early stages of the developing bear market that chart structures worldwide are illustrating.

 

 

 

Volatility, as measured by the VIX, jolted above the moving averages last week although the relative calm on Friday returned the indicator down again. The market is largely unaware of the impending collapse ahead although a small investment element is concerned and even jumpy when downward moves occur. The VIX maintains its position between previous highs and lows but will register sharp moves as and when the equity indices move sharply.

 

 

 

 

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