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Weekend Market Analysis 10 June 2018

Jun 9th, 2018

Executive summary

World equity markets mostly moved sideways to up as the countertrend rally in the US Dow Jones continued into its 10th week, with increased evidence that the rally has probably run its course. Investor interest is  languishing as ratios such as ‘Advance/Decline’ and ‘Put/Call’ continue to fall. Gold continues into a more positive phase again, buoyed by stronger silver which continues to outperform as it continues to improve the Gold/Silver ratio which closed below 78. Treasuries continued sideways this week with the US 10 year yield closing at 2.93%, which has further to drop in the countertrend correction before finally again resuming the bond market collapse to yields above 3% and then 5% and beyond. This will of course be in tandem with general equities worldwide which are still in the early stages of the developing bear market.

The US$ continued to weaken to close at $93.54 with further weakness to come in the long term, however it is still likely to rise above its rally peak before this happens. This has gold as well as the whole resource sector looking stronger at the moment with a variety of positive options in the short term. However, there are also some contrary indications and this is all happening with the continued array of disquieting events globally which include, amongst others:

  • G7 meeting this weekend with the world largely against Trump (Climate, Iran, and much else);
  • Trump meeting Kim Jong Un next week on 12 June;
  • Another potential US rate hike next week with the US Fed meeting on the same day (12 Jun);
  • Potential trade wars;
  • Continued peril in the EU from Italy to potentially another 5 or 6 countries wanting to exit;

So, the fine balance between stability in the US$, gold, bond and equity markets continues.

 

US$

The US$ has turned down from its recent peak after confirming the top with more than 2 consecutive closes below 10-Dema. After further expected weakness it is likely to increase above the recent peak at $95 before weakening long term.

The oscillators are dropping in support of further weakness.

 

 

 

The longer term 14 year chart illustrates the dollar increase up to resistance at the 95 level and the drop back since. The chart, as well as a number of other long term charts, illustrate the likelihood that the next moves in the longer term will be down, after the current adjustments around the $95 level.

Pic US$14y

 

 

Japanese Yen

The US$/Yen price at 109.43 is midway between support and resistance in a chart pattern illustrating a bias towards a stronger Yen. This also supports a stronger gold price and a weaker dollar as the Yen trends towards the region of support (red).

The oscillators are turning down in support of further Yen strength in the short term.

 

 

 

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 is likely to persist for the time being with yield moving back down towards the 2.72% support line (red) before rising with the trend aggressively.

The oscillators are dropping in support of further reduction in yield in the short term.

 

 

 

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 continues to stall in the tail until a stronger gold price and weaker bond market completes the right shoulder in the H&S pattern.

 

 

 

Gold

The gold price is in a reluctant rally from the 6 month cycle low at $1281 and still needs to penetrate 200-Dema and break through the higher 50-Dema if it is to test the previous high at $1326.30. Silver continues to outperform gold which is bullish, and with the expected weakness in the dollar and a probable termination in the Dow Jones countertrend rally, it seems likely that a gold breakout is imminent.

The oscillators are in support of further increase in the gold price, but there are however other negative factors suggesting otherwise, described later in this narrative.

 

 

 

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. The 6 month cycle low should now 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 bias has turned from positive to negative and it still needs to penetrate 0.1406 to generate real traction in the miners.

The oscillators are mixed indicating that more time is required to develop a positive structure.

 

 

 

GDX US miners ETF

The GDX chart structure is also turning slightly negative although the previous lows at $22 are holding. Penetrating 200-Dema is also necessary and this last happened 18 trading days ago. The diagonal resistance line (black) is proving difficult to breach as well as to start clearing some previous highs.

Although the MACD is holding the Slow Stochastic appears to be turning down which is negative.

 

 

 

The longer term GDX chart continues to illustrate the range-bound nature of the chart structure, and the oscillators are not particularly positive to suggest any change soon.

 

 

 

DUST US Gold Miners Bear Index

The negative bias in the DUST chart (bullish for US gold miners) is moving sideways and could be turning up slightly judging by the oscillators (bearish for US gold miners).

 

 

 

Silver

The silver price has broken up through 200-Dema in a positive thrust since the 6 month cycle low, as it continues to outperform gold. The oscillators are mildly supportive.

 

 

 

The longer term 3 year chart continues to simmer positively with good oscillator support. But silver is still stalling at 50-Wema and needs to breakout above $17 to breach the top line of the reducing wedge.

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) has broken up into resistance after the recent positive oscillator divergence. The chart looks positive and as such supports better silver prices and a lower gold / silver ratio.

 

 

 

Gold : Silver Ratio

The ratio has broken down through the bottom line of the rising pattern of the past year in closing at 77.81. This is very positive for higher precious metal prices. Although the oscillators are mixed the chart looks promising.

 

 

 

General Equities

The Dow Jones countertrend rally has probably run its course in closing yet higher after 10 weeks. Investor interest is languishing as ratios such as ‘Advance/Decline’ and ‘Put/Call’ continue to fall and the next moves are probably down to start testing the previous low at 24247. Dow declines below this level 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.

The Slow Stochastic is topping out in support of lower prices from here.

 

 

 

A fascinating aspect of this particular market decline is that virtually nobody is concerned and virtually everybody believes this is all part of a continuing bull market. Volatility, as measured by the VIX, is at the same level now, at a much lower price, as it was on 26 Jan 2018 when the market peaked. The market is virtually unaware of the impending collapse ahead.

 

 

 

 

 

 

 

 

 

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