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Weekend Market Analysis 17 June 2018

Jun 17th, 2018

Executive summary

World equity markets were mixed this week with the US Dow leading down slightly and the EU up, with the prime causes being the US Fed hiking the rate and the ECB holding the rate steady. The US Fed was particularly hawkish in what the market read as potentially 4 rate hikes in 2018 as opposed to the 3 earlier. The dollar index increased strongly against virtually all other currencies to close at $94.45, and this had gold move down sharply to close at $1278.50 despite initially strengthening with the dollar up to $1314 on Thursday. The US market also had to contend with increased tariff hike talk from Trump with China indicating retaliation which once again highlights the prospect of trade wars. This may again signal the top of the countertrend rally in the US Dow Jones although in turning down it ended the week with a ‘Hammer’ candle with a long bottom shadow which usually indicates increased prices to follow. The more positive phase in gold has been nullified for the time being. Treasuries continued sideways this week with the US 10 year yield closing at 2.93% as it did last Friday, although most of the week registered higher yields. The EU and Japan treasuries remain at low yields with monetary easing remaining in place for the time being against the monetary tightening in the US.

Investor interest on the New York Stock Exchange remains highly complacent with high optimism as measured by various indicators such as volatility, ‘Advance/Decline’ and ‘Put/Call’ ratios, etc., which is all consistent with the late stages of maturity in a bull market. Conversely, the precious metals market exhibits a high level of investor pessimism with the gold price closing below the erstwhile supposed 6 month cycle low of $1281. There are a number of reasons why gold should enjoy a significant rally such as the steadily increasing US interest rate, increasing inflation, plus many others. But, it seems the whole precious metals complex is much more likely to endure further significant downside before this materialises.

 

US$

The US$ has resumed its rally, sparked by the US rate hike this week, and is likely to move higher than the earlier peak at $95.15 before unfolding into the next structural pattern. The chart produced a large engulfing candle on Thursday as a ‘Tower of Strength’ engulfing 8 previous candles, which is likely to propel the dollar through and beyond the resistance zone soon.

The oscillators are rising in support of this proposition.

 

 

 

The longer term 14 year chart illustrates the dollar increase up to resistance at the 95 level and the probable rise higher. The chart, as well as a number of other long term charts, illustrate the likelihood that the next long term moves will be down, after further higher levels first.

 

 

 

Japanese Yen

The US$/Yen is holding at diagonal resistance (blue) which is relative strength given the recent strong dollar moves up. This is supportive of a stronger gold price but the Yen may yet weaken with impending dollar strength.

The oscillators are mixed however and moves may be either way.

 

 

 

US Treasuries

The benchmark US Treasury 10 year yield moved sideways this week at 2.93% and is in a countertrend correction which may see the yield move still lower towards the support line at 2.72%. The main trend is towards higher yields though which will resume in due course as the bond market continues to collapse as it has been doing since mid-2016.

The oscillators are mixed and not particularly supportive either way.

 

 

 

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.

The oscillators are dropping and this indicates further deterioration in the chart which is not supportive of gold or higher bond yields yet.

 

 

 

Gold

Gold has been in a reluctant rally from the erstwhile supposed 6 month cycle low at $1281 as well as not confirming recent silver strength. This has produced a ‘divided’ precious metals complex which suffered the inevitable fate of a plunging gold price on Friday. It dropped 2.25% on Friday to a new potential 6 month cycle low at$1278.50.

The more positive phase in gold has been nullified for the time being as the precious metals market exhibits a high level of investor pessimism. There are a number of reasons why gold should enjoy a significant rally such as the steadily increasing US interest rate, increasing inflation, plus many others. But, it seems the whole precious metals complex is much more likely to endure further significant downside before this materialises.

The oscillators look precarious and gold is likely to fall further next week.

 

 

 

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. However, the erstwhile 6 month cycle low has been breached and a new one is to be found lower down.

The oscillators are mixed and not supportive either way.

 

 

 

The yet longer term massive pentagon base pattern continues to hold as it prepares for penetration of the neckline at $1375.00 at the top or the diagonal support line at the bottom. The next week or two should be telling.

 

 

HUI / Gold Ratio

The HUI / Gold ratio is indicative of the highly geared nature of the gold miners, as it had a positive week in rising to the key level of 0.1406 only to drop back to 0.139 on Friday. It still needs to penetrate the 0.1406 level to regain a positive bias and achieve real traction for the miners, but this now seems unlikely for a while.

The oscillators are mixed and not supportive either way.

 

 

 

GDX US miners ETF

GDX also had a positive week rising to the previous high and penetrating diagonal resistance before falling back on Friday in a chart that continues to moves sideways. Support at previous lows at $22 continues to hold.

Although the MACD is holding the Slow Stochastic is 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 DUST chart is moving sideways with a slight positive bias towards the triangle apex, which could break up or down. Up will be bearish for US gold miners, and the Slow Stochastic is pointing that way.

 

 

Silver

Silver had a very positive 8 trading days to penetrate diagonal support (blue) and very nearly reach the previous high at $17.39. During this time it was not confirmed by gold which cast a negative feel to the whole process, and this culminated in a disastrous Friday drop of 4.5%. The diagonal support line was not penetrated and the 6 month cycle low is still well clear and holding.

The oscillators are dropping suggesting further price drops next week.

 

 

 

The longer term 3 year chart reducing wedge patterns continue to hold as the price moves sideways towards the triangle apex which could break either way. Price is still midway between support and resistance although there has been a fleeting false break up. The week ended with a bearish ‘Dark Cloud Cover’ candle, with a long shadow above which normally means lower prices to follow.

MACD continues its 18 month long process of honing to a point while the Slow Stochastic moves sideways.

 

 

 

USLV US Silver Miners Bull Index

The US silver miners USLV (bull index) also had a positive week in breaking up to create a new higher level resistance zone (blue). It broke down strongly on Friday but closed well above support (red). The whole process of up and down has closed all the gaps.

The oscillators are still exhibiting positive divergence with price, which continues to bode well.

 

 

Gold : Silver Ratio

The ratio has had a strong week dropping down below 76, only to be corrected up by Friday’s prices to close at 77.58. The oscillators are dropping which is positive for a yet lower ratio soon, which is positive for metal prices. A strong downward sloping trendline (black) has formed.

 

 

 

General Equities

The Dow Jones dropped slightly this week due to the US Fed hiking the rate together with increased tariff hike talk from Trump with China indicating retaliation which once again highlights the prospect of trade wars. The US Fed was particularly hawkish in what the market read as potentially 4 rate hikes in 2018 as opposed to the 3 earlier. The Dow Jones only dropped 0.89% in the week and it closed on a ‘Hammer’ candle with a long bottom shadow which usually indicates increased prices to follow.

Investor interest on the New York Stock Exchange remains highly complacent with high optimism as measured by various indicators such as volatility, ‘Advance/Decline’ and ‘Put/Call’ ratios, etc., which is all consistent with the late stages of maturity in a bull market. This may again signal the top of the countertrend rally in the US Dow Jones

The Dow is in a threatening ‘rising wedge’ pattern which it could break down through soon as the oscillators are both dropping.

 

 

 

 

 

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