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Midweek Market 6 Sep 2018

Sep 6th, 2018

Executive summary

World markets are fractured with a plethora of non-confirmations across all platforms. Most stock markets worldwide are declining while in the US the S+P500 and Nasdaq flirt with new highs while the main indices in the Dow Jones and NYSE are only in a countertrend rally, albeit in the late stage thereof. Euphoria and ‘flight to risk’ still abounds while the NYSE ‘Highs minus Lows’ measure ended at -6 yesterday, highlighting the major divergence between euphoria and reality.

The US$ has peaked and gold is starting a multi-month rally, despite the precious metals market enduring extreme pessimism at the moment with most indicators pointing towards further severe price drops. US bonds are in a long term bear market but at the moment enjoy a countertrend rally that is late in terminating.

Emerging market contagion has been driving recent dollar strength, and most world equity market weakness, and this could gain momentum in the next period.

 

US$

The US$ index has resumed its daily decline with an Harami candle after completing a relief countertrend reversal. It has once again declined back into the consolidation support zone (red), and looks set to continue its decline.

The oscillators are somewhat mixed.

 

 

 

The longer term 12 month chart illustrates the decline potential, through the various levels of support in the consolidation zone, towards the 61.8% Fibonacci retracement level at $91.57.

The oscillators are rising which indicates some hesitancy for quick weakness through the strong support zone.

 

 

 

The even longer term 3 year chart illustrates a more powerful motivation for weakness with the countertrend reversal ending on a bearish Shooting Star candle plus declining oscillators. The overall decline should be multi-month towards the target decline zone at the 61.8% Fibonacci retracement target at about $91.00 in line with the Sep 2017 low.

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.

 

 

The US$ index COTs data illustrates the widening gap between the Large Speculators and Commercial Speculators which typically indicates a weakening dollar.

 

 

US Treasuries

The benchmark US Treasury 10 year note continued to weaken this week with yield increasing to 2.90% although the countertrend rally is technically still in progress. The yield curve continues to increase with rising oscillators indicating this is likely to continue. However, the wave structure indicates otherwise, and direction therefore remains undecided between the closest red and blue horizontals.

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 longer term 5 year chart illustrates the main trend rise still intact, also with penetration up through various H&S patterns. The indecision can be seen in the triangle (Black) representing the countertrend correction which is still in progress.

 

 

 

Gold

The gold price bottom has been confirmed and the multi-month rally is underway, although very fragile. The indications are positive with a weakening dollar, very positive COTs data, and investor pessimism at extreme levels. But the market needs to develop stronger buying interest after the recent price devastation, and hopefully this will manifest in breaking through initial levels at $1221 and later at $1240.

Many other indicators are very pessimistic, especially US miner price levels and underperformance together with silver. The short term oscillators are turning down despite the positive MACD breakout at the bottom of the chart.

 

 

The gold COT chart indicates a continuing even tighter convergence that has now narrowed to a single point. This typically precedes a price bottom as can be seen historically.

 

 

 

The longer term 3 year weekly chart illustrates more positive oscillators as well as a more positive weekly closing candle.

 

 

HUI / Gold Ratio

US miner underperformance against gold deteriorated further towards investor capitulation. The earlier development towards a price bottom in the ratio has been destroyed with a breakdown to a new low.

The oscillators are turning down and are probably near to bottoming, given the positive dollar/gold outlook.

 

 

GDX US miners ETF

The GDX chart is of course similar to the Hui:Gold ratio chart and the same commentary applies. US miner investors have near capitulated, and the earlier development towards a price bottom has been destroyed with a breakdown to a new low (red circle).

Once the gold trigger kicks in so too will GDX eventually 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 are rising again (negative for gold miners) although probably near to topping (positive for gold miners).

 

 

Silver

The silver price continues to increasingly underperform gold and in fact the position deteriorated further this week. The earlier development towards a price bottom has been destroyed with a breakdown to a new low. That situation needs to turn around urgently although indications are positive with a weakening dollar, very positive COTs data, and investor pessimism at extreme levels. But, like gold, the market needs to develop stronger buying interest after the recent price devastation, and hopefully will manifest in finally developing a price bottom.

The oscillators are turning down but are probably near to bottoming, given the positive dollar/gold outlook.

 

 

 

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 strong negative bias having destroyed the earlier attempt at developing a price bottom. It has broken down to a new low with the oscillators also turning down. A rise into the resistance zone is the next priority.

 

 

Gold : Silver Ratio

The ratio has pushed up through the triple top to close at 85.09, generating additional bearishness. All appears to be ‘doom and gloom’ with this indicator pointing towards further precious metals weakness.

The oscillators are rising, adding to the gloom.

 

 

General Equities

World markets are fractured with a plethora of non-confirmations across all platforms. Most stock markets worldwide are declining while in the US the S+P500 and Nasdaq flirt with new highs while the main indices in the Dow Jones and NYSE are only in a countertrend rally, albeit in the late stage thereof. Euphoria and ‘flight to risk’ still abounds while the NYSE ‘Highs minus Lows’ measure ended at -6 yesterday, highlighting the major divergence between euphoria and reality.

The Dow Jones continues to endure low energy characteristics climbing to new low-level highs as it exhibits continued signs of exhaustion. The chart pattern indicates a potential fracture from the rising wedge. 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.

The oscillators are turning down in support.

 

 

 

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 -6 yesterday.

 

 

 

The rising wedge at the end of the countertrend rally presents a potential drop to signify an end to the 6 month rally. The fragmented nature of the US market with all its non-confirmations and low energy levels presents strong potential for the start of the next wave down.

The next key penetration point remains 24 950 below which lies a plethora of break points and the first strong support level.

 

 

 

 

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