Home > Currency, Equity, Gold > Weekend Market Analysis 12 Aug 2018

Weekend Market Analysis 12 Aug 2018

Aug 11th, 2018

Executive summary

World equity markets were flat to slightly down this week with a very weak Friday. US markets continue to exhibit a loss of energy or momentum, and the S+P500, for instance, is propelled really by only the ‘FANGS’ shares, with the structure of its chart virtually identical to that of the 2000 collapse.

A number of countries (especially in Europe) reported inflation figures which were all higher than estimates, so inflation is certainly beginning to ratchet up as virtually all central banks re-position themselves for higher interest rates. The crisis in Turkey put pressure on emerging currencies as the ‘flight to safety’ lifted the US$, while equity markets turned down on Friday. Meanwhile Trump continues to fight the rest of the world in what has to come back to damage him and America eventually. So, the markets remain in their ‘tipping point’ mode.

The US$ increased to close well up at $96.22 which now exceeds the previous high at $95.652, and probably signals the end of the rally having completed its 5 wave advance. Next week will probably confirm this and give rise to other currency strengths (principally the Euro and Yen) as well as the start of the gold rally. Gold closed at $1211.58 (surprisingly high, given the dollar strength) with investor sentiment at extreme pessimism levels. Precious metals are poised for a strong rally which could see gold rise to major resistance at $1375 and, as some would have it, even beyond. Precious metals COT data continues to look more and more bullish to power spectacular price increases.

 

US$

The US$ index short term chart structure indicates the breakout to close strongly at $96.22 having penetrated the previous high at $95.652, with investor sentiment peaking. This probably signals the end of the rally having completed its 5 wave advance as predicted, which will probably be confirmed next week as other currencies strengthen (principally the Euro and Yen). It will also signal the start of the gold rally.

But before this the top needs to be confirmed which requires 2 consecutive closes below 10-Dema. Once this occurs we are likely to see a weaker dollar during the next phase.

The oscillators are still rising though and therefore the decline will not be immediate.

 

 

 

The longer term 12 month chart illustrates the powerful breakout with a broad support zone below. Once the top is confirmed the dollar could decline by a likely Fibonacci retracement of 61.8% which will take price below support to the region of $91.00.

The oscillators are not signalling any of this yet.

 

 

 

The longer term 3 year chart illustrates the breakout from the rising wedge towards a zone of some resistance. Once the top is confirmed the decline phase could breach the support zone and test the Sep 2017 low at about $91.00.

The decline will form the beginning of the left shoulder of what could develop into a bullish inverted H&S formation which could propel the dollar much higher to $105.00 and beyond.

The oscillators are holding up in preparation for the decline.

 

 

 

Japanese Yen

The US$/Yen currency pair weakened further as the Yen enjoys recent strength. In fact the Yen strengthened during the dollar’s strong advance on Friday, depicted by the closing red candle (down). This is likely to continue much further once the US$ peaks, which will test the support zone and even penetrate it during a period of strength in precious metals as well.

The oscillators are dropping and are likely to drop further after the dollar peaks.

 

 

 

US Treasuries

The benchmark US Treasury 10 year note strengthened this week in response to the crisis in Turkey and the decline in the Dow on Friday, with yield declining markedly to close at 2.87%. The yield curve has broken down ever so slightly through the blue diagonal and seems likely now to follow the red parallels and not the blue. The countertrend rally therefore is likely to endure a while longer.

In the final analysis the horizontal blue and red lines need to be penetrated to determine direction. But in the short term the oscillators are dropping in support of the red arrow.

 

 

 

Gold

The gold price continues to churn in consolidation mode just above the 6 month cycle low, and needs to find the necessary energy to start a rally. Given the status of the US$ the rally is likely to start soon, although the bottom still needs to be confirmed with 2 consecutive closes above 10-Dema. Also a key level at $1238 needs to be penetrated for this to be a genuine rally.

The oscillators are turning up and beginning to look positive in support of this proposition, and the COTs data continues to look more bullish for a spectacular gold rally.

 

 

The gold COT chart indicates a continuing tightening convergence that precedes a price bottom, and it presents a very positive picture of a strong rally next.

 

 

 

HUI / Gold Ratio

US miners continue to underperform gold, and the HUI / Gold ratio continues to decline further with no confirmed bottom yet, reflecting the extreme investor pessimism. But, there are now many indications of a reversal and once this is achieved the rally is likely to be energetic. We still need 2 consecutive closes above 10-Dema though and until this happens the rally for HUI investors cannot materialise.

The Slow Stochastic has bottomed and there appears to be a slight bending in the MACD which could be a bottom soon.

 

 

 

GDX US miners ETF

The GDX has dropped to a new low amid extreme investor pessimism and conveys the same picture as the HUI / Gold ratio.

 

 

 

DUST US Gold Miners Bear Index

The DUST chart continues to thrust up, reflecting the gold miner’s dismal status, and the previous close below 10-Dema was 24 trading days ago. The situation, seemingly, cannot be worse with a top still to be confirmed. We still need 2 consecutive closes below 10_Dema to confirm the top and any potential reversal.

The oscillators are topping out however and a Dust price turn down is probably imminent and much overdue.

 

 

 

Silver

As with gold, silver continues to churn in consolidation mode just above the 6 month cycle low, and needs to find the necessary energy to start a rally. Given the status of the US$ the rally is likely to start soon, although the bottom still needs to be confirmed with 2 consecutive closes above 10-Dema. Also a key level at $15.70 needs to be penetrated for this to be a genuine rally.

The silver COTs data continues to look more bullish for a spectacular silver rally.

 

 

 

The silver COT chart indicates a continuing tightening convergence that precedes a price bottom, and it presents a very positive picture of a strong rally next.

 

 

USLV US Silver Miners Bull Index

The US silver miners USLV (bull index) exhibits a similar strong negative bias to Dust’s positive bias, and there is much churning just above the bottom. A rise above 8.25 should herald the start of a strong rally, and the rising oscillators suggest this is likely soon.

 

 

 

Gold : Silver Ratio

The ratio is still below 80 and is also still holding below both the red and black trendlines (blue circle). So, the chart is still positive rather than negative. However, the oscillators are turning up which is negative.

 

 

 

General Equities

The short term Dow chart illustrates the decisive bear flag breakout and the nearby support line at 25120 which once breached will confirm the end of the 4 month countertrend rally which, until then, is technically still in progress.

If 25120 is penetrated decisively it will herald the start of a significant leg down which will be a prolonged  and severe drop. The oscillators are dropping in support of this proposition.

 

 

 

The Dow Jones chart structure continues to maintain its bear market mode despite the 4 month countertrend rally, which may now be close to an end. The bear flag has been penetrated on the downside decisively as has been the Primary Bull Market resistance line. The next penetration point is 25120 and if this is breached it will confirm the end of the countertrend rally.

Once the next wave down starts on the Dow it will quickly test previous lows indicated on the chart in red. The oscillators are dropping in support of lower prices and the next wave down.

 

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