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Midweek Market 4 Oct 2018

Oct 4th, 2018

Executive summary

World financial markets have reached an overwhelmingly precarious position as the reduction in QE gains momentum while QT begins the arduous task of draining inflated liquidity from the system. This is being led by the US as the interest rate cycle turns up with evermore power.

To appreciate how hazardous this is you need only to examine the US bond and stock Markets to realise how they relate to one another and how they will impact on the commodities market.

Today the world is on the cusp of equities plummeting and a huge wave down in the commodities market: All brought on by the excesses of central bank behaviour since removing gold backing from currencies. This is also happening at a time of extreme rampant optimism which camouflages the imminent seismic shift in fortunes.

It is said the bond market is 3 to 4 times larger than the stock market. The US bond market bottomed in mid-2016 when the benchmark US 10 year Treasury note began to increase yield from as low as 1.3%. This week yields spiked up as the US bond market continued to collapse with the 30 year at a new 4 year high, the 10 year at a new 7 year high and the 2 year at a new 10 year high. This culminated after the US bond market had enjoyed a 35 year bull market from 1981, and now is suffering a long term bear market which of course could last another 10, 20, or 30 years. It is at this time that the US stock market is enjoying new highs.

The new highs have been generated by ever-less shares in a fractured market displaying non-confirmations across all platforms, driven mostly by a few IT shares and probably a high degree of computer algorithms. The New York Stock Exchange continues in exhaustion mode with new lows continuing to exceed new highs in closing yesterday by a margin of minus -189, extending the negative trend for over 6 weeks now in what appears to be a prelude to a collapse.

The US$ index advanced this week, after the recent declines, to stall at and reverse down from the previous high. The question remains as to whether the Elliot Wave correction is complete or whether the B wave is still in process to still generate a much lower C. The US$ Cots data indicates further weakness still to come.

Precious metals and all the ancillary associated charts are looking slightly more positive even with the development of some bullish H&S patterns.

 

US$

The US$ index advanced this week, after the recent declines, to stall at and reverse down from the previous high. The question remains as to whether the Elliot Wave correction is complete or whether the B wave is still in process to still generate a much lower C.

The oscillators are mixed and the dollar may still move either way.

 

 

 

The longer term 12 month chart illustrates the bounce off the 38.4% Fibonacci retracement level, stalling at resistance. It still begs the question of whether the decline is complete or not, because both the stalling at resistance and the COTs data suggest further potential declines.

The daily (short term) indicators suggest further dollar strength.

 

 

 

The US$ COTs data illustrates the wider dilation which supports further weakness.

 

 

US Treasuries

Yield on the benchmark US 10 year Treasury spiked up this week to a new 7 year high. This signals the end to the countertrend rally (increasing bond price) although a short term relief reversal is possible. This indicates a strong continuation of the US bond collapse is again underway.

 

 

 

The much longer term 40 year chart illustrates the 35 year bond bull market reaching a bottom yield point in mid-2016. This point represents the head of the inverted H&S formation which indicates that yield of 5% will be forthcoming in the long term bond bear market as it unfolds (being the depth of the head projected up).

 

 

 

Gold

The gold multi-month rally is still in very slow process, hemmed in by the sideways wedge (and a stronger dollar). The chart has developed a slightly more positive bias but much is still to be achieved. The key support and resistance levels are indicated. Gold therefore remains at a tipping point with slightly positive oscillators and strong COTs data.

 

 

The gold COTs data is now beginning to move from a bullish convergence to an even more bullish dilation, indicating gold strength and by definition a weaker dollar.

 

 

The longer term 3 year weekly chart indicates the sideways wedge which could break up or down. This is a much more positive chart with the oscillators turning up in support of a breakout up. The gold rally still needs to become a reality however and if a breakout up does not occur then a break down will be followed by lower prices down to test the $1125 level.

 

 

 

A look at the Gold : 10 year US bond price ratio on a 6 year weekly chart indicates the beginning of a more positive picture with gold preparing to breakout against a weaker bond. This has been a long time coming and the oscillators too are pointing up and positive.

 

 

HUI / Gold Ratio

The earlier US miner jolt up against gold is once again moving up, after an interim decline, as the rally in US miners gains momentum. The chart is developing a more positive bias together with supporting oscillators and a potential bullish H&S breakout.

 

 

 

GDX US miners ETF

The GDX chart is of course similar to the Hui:Gold ratio chart and the same commentary applies. US miner investor optimism needs to be supported with higher gold prices, and a higher GDX will in turn assist the gold price to increase.

The chart is developing an improved positive bias with a potential bullish H&S breakout.

 

 

DUST US Gold Miners Bear Index

The Dust chart displays virtually the exact opposite ais also developing a more positive bias with a potential bullish H&S breakout.

 

 

Silver

Silver has begun outperforming gold, although with a slight retracement this week. The chart pattern is very much more positive than gold but it needs to sustain it’s upward momentum. This is positive for precious metals and hopefully the position can be maintained with the silver COTs data now even more bullish.

Hopefully, key initial levels can be tested on the upside while it is critical to hold the bottom support line at $14 otherwise much lower levels will be tested.

The oscillators are somewhat mixed without promising much either way.

 

 

 

The silver COTs data remains very positive, indicating silver strength. The bullish dilation pattern continues which promises increased prices.

 

 

USLV US Silver Miners Bull Index

The US silver miners USLV (bull index) chart is developing a more positive bias although it is still very weak. The upward momentum needs to be maintained, and the oscillators are mixed and do not promise much.

 

 

Gold : Silver Ratio

The data continues to improve despite some retracement this week to close at 82, still below 10-Dema. The oscillators are mixed and the ratio could move either way.

 

 

 

General Equities

The New York Exchange continues to achieve new highs, one week in one index and the following week in another, generated by ever-less shares in a fractured market displaying non-confirmations across all platforms. It is driven mostly by a few IT shares and probably a high degree of computer algorithms, as it continues in exhaustion mode.

The rising wedge pattern continues in this mode with interim and final collapse levels at 25 750 and 24 950.

 

 

 

The recent negative trend on the New York Stock Exchange of new lows continuing to exceed new highs extended to more than a month in closing yesterday by a margin of minus -189, as the market continues to be driven by ever lower energy in what appears to be the prelude to a collapse.

The index closed at -189 yesterday.

 

 

 

It is said the bond market is 3 to 4 times larger than the stock market. The US bond market bottomed in mid-2016 when the benchmark US 10 year Treasury note began to increase yield from as low as 1.3%. This week yields spiked up as the US bond market continued to collapse with the 30 year at a new 4 year high, the 10 year at a new 7 year high and the 2 year at a new 10 year high. This culminated after the US bond market had enjoyed a 35 year bull market from 1981, and now is suffering a long term bear market which of course could last another 10, 20, or 30 years. It is at this time that the US stock market is enjoying new highs.

It is just a matter of time before equities collapse into a long term bear market.

 

 

 

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