Home > Currency, Equity, Gold > Midweek Market 30 Aug 2018

Midweek Market 30 Aug 2018

Aug 30th, 2018

Executive summary

World equity markets continue to rise, lead by the US. Even emerging markets are up, and mostly by larger increments than developed markets. Resources, except for oil, remain sluggish while precious metals continue to dither at the start of a multi-month rally.

US interest rates bottomed in mid-2016 as the world prepares for an interest rate cycle that is turning up. This is reflected in the US bond market as yield on the Treasury Notes increase, but it is not reflected in the equity market which should be declining also. Instead US equities which lead the world, continue to edge up in what is now the longest bull market in history. At the same time it is doing so in a fractured way with very few shares (Faangs) driving up the market against the majority which are not. Also, the blue chip Dow Jones and the all-encompassing NYSE index are not reaching new highs as are most of the other indices, adding to the divergence and narrow characteristic of the market described by some as a ‘flight to risk’. The markets are therefore at a ‘tipping Point’ stage as this scenario plays out in a kind of ‘The Brave and the Stupid’ soap opera that is going to leave many devastated in due course.

The US$ index peaked and is declining into a multi-month weakening cycle that is propelling gold into a multi-month rally. However, the devastation caused in the severe precious metals decline has left investors extremely pessimistic, and it will take a while to generate some energy in lifting prices into the rally proper. The current COTs report is extremely bullish for precious metals with positive indications similar to those last seen in 2001 at the start of the massive bull market leading up to the peak in 2011.

 

US$

The US$ index declined from the peak well into the consolidation support zone (red) dropping from the peak at $96.984 by some 2.5% in also penetrating 50-Dema. This is developing into a multi-month decline which is possibly due an interim reversal soon.

The oscillators are still dropping although the Slow Stochastic could be bottoming.

 

 

 

The longer term 12 month chart illustrates the decline with various levels of support indicated in addition to the 61.8% Fibonacci retracement level at $91.57.

The oscillators indicate more room for dropping further, signalling further dollar weakness.

 

 

 

The even longer term 3 year chart illustrates the diagonal support line (black) close at hand which might prompt an interim reversal. The various support lines (red) are indicated leading down to the target decline zone towards the 61.8% Fibonacci retracement target at about $91.00 in line with the Sep 2017 low.

The oscillators have much further space to drop indicating much further weakness. The decline will form the beginning of the left side of the right shoulder of what could develop into a bullish inverted H&S formation which could propel the dollar much higher to $105.00 and beyond later on.

 

 

 

US Treasuries

The benchmark US Treasury 10 year note weakened this week with yield increasing to 2.89% although the countertrend rally is technically still in progress. The yield curve penetrated the red diagonal although both the red and blue horizontals are still intact. The direction is therefore somewhat still undecided.

The red horizontal line represents support and the blue line resistance. The main trend will resume once the horizontal blue resistance line is penetrated, after which the US bond market will resume its collapse.

The MACD has formed a reducing wedge and the technical implication is a breakout upwards eventually.

 

 

 

Gold

The gold price bottom has been confirmed with 2 consecutive closes above 10-Dema. But, as can be seen, it is tenuous. The indications are positive though with a weakening dollar, very positive COTs data, and oscillators rising. But the market needs to develop stronger buying interest after the recent price devastation, and hopefully this will manifest in breaking through $1221 and trying later for $1240.

Price needs to penetrate the resistance zone and break through at least the $1240 level before this will be clarified.

The oscillators are turning up and beginning to look more positive in support of this proposition, and the MACD has a breakout through the reducing wedge.

 

 

The gold COT chart indicates a continuing even tighter convergence that precedes a price bottom, and it presents a very positive picture of a strong rally next. Such a situation was last witnessed in 2001 which was at the start of the massive gold bull market that lead to the peak in 2011.

 

 

The longer term 3 year weekly chart illustrates the very positive oscillator position with both turning up and plenty of upside space. The ending red candle could be the start of an Evening Star which is bearish.

 

 

 

The massive Pentagon base pattern is very bullish in line with many other commentaries on the internet. Gold is positioned to now test the 5 year neckline at $1375 during the multi-month rally, with positive oscillator support.

 

 

 

HUI / Gold Ratio

US miners continue to underperform gold, and the chart illustrates the severe underperformance in the last 4 weeks. A bottom is developing but still unconfirmed.

The oscillators are more positive now, indicating more positive price moves next.

 

 

 

GDX US miners ETF

The GDX chart is of course similar to the Hui:Gold ratio chart and the same commentary applies. Once the gold trigger kicks in so too will these charts ignite.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart displays a geared version of the inverse of the preceding charts and the same commentary applies, in reverse. Once the gold trigger kicks in so too will this chart ignite downwards. It provides an early warning system of what is likely to happen to gold and gold miners, the oscillators have topped out and are beginning to decline which is positive for gold.

 

 

 

Silver

The silver price is underperforming gold and this is one of the major reasons why the complex is not moving up. By definition though, it almost implies that the gold : silver ratio is next to move down, and not up further. But to take little steps one at a time we need to first develop a bottom in the silver chart. Once that is achieved we need to penetrate the initial price level of $15.12 to enter the resistance zone.

Like gold, silver also has bullish COTs data, but the market still needs to develop stronger buying interest after the recent price devastation. The question remains as to whether this is just a short price ‘blip’ or the beginning of a stronger rally to higher prices.

The oscillators are turning up and beginning to look more positive in support of this proposition.

 

 

 

The silver COT chart indicates a continuing even tighter 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, with also an attempt at developing a bottom which is as yet unconfirmed. A rise into the resistance zone is the next priority.

 

 

 

Gold : Silver Ratio

The ratio pushed up further above 80 and is now at 82,43. It has not penetrated the triple top, and needs to prevent that as a first priority. The chart structure is bearish for precious metals and could turn bullish if the triple top is not penetrated. The oscillators are mixed and the data is somewhat trendless over the time span of the triple top.

 

 

 

General Equities

US equities continue to edge up in what is now the longest bull market in history. At the same time it is doing so in a fractured way with very few shares (Faangs) driving up the market against the majority which are not. Also, the blue chip Dow Jones and the all-encompassing NYSE index are not reaching new highs as are most of the other indices, adding to the divergence and narrow characteristic of the market described by some as a ‘flight to risk’. The markets are therefore at a ‘tipping Point’ stage as this scenario plays out in a kind of ‘The Brave and the Stupid’ soap opera that is going to leave many devastated in due course.

The Dow Jones continues to endure low energy characteristics climbing to new low-level highs as it exhibits continued signs of exhaustion. The latest chart pattern is a rising wedge with price close to the apex. The first major support level is at 24950 and if breached decisively will confirm the end of the 5 month countertrend rally which, until then, is technically still in progress.

 

 

 

One of the indicators pointing to exhaustion on the NYSE is the chart of New Highs against New Lows. It continues to illustrate the difference in the energy of the bull market leading up to the Jan 2018 peak and the lethargy and lower energy levels of the countertrend rally in the bear market. The chart below highlights the 6 months leading up to the Jan 2018 peak and the 5 since the start of the bear market countertrend rally.

During the bull market phase New Highs outstripped New Lows by an average of about 200 (blue dotted), whereas during the countertrend rally from Apr to now they were outstripped by an average of about 25 (red dotted). In other words, the bull market was powerful with high energy levels whilst the bear market rally is lethargic and low in energy. The difference in levels between blue and red is distinct and clear.

The index closed at 111 yesterday.

 

 

 

The rising wedge at the end of the countertrend rally is now pulling away from the ‘Primary Bull Market Resistance Line’. This, in spite of the lower energy levels in the market. This seems to present the potential for a new powerful thrust up, or down soon.

 

 

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