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Midweek Market 11 Oct 2018

Oct 11th, 2018

Executive summary

World financial markets are starting to roll over in response to the overwhelmingly precarious position they are in. The liquidity cycle is finally beginning to bite as the interest rate cycle continues to turn up in the US, which will eventually move worldwide. Together with parabolic global debt, rising inflation, currency value deterioration, and various other threatening criteria, central banks certainly will need to expertly manage the next period. If mismanaged, which is likely given history, then stagflation or worse will result.

The US bond market is in a long term bear market (yields rising) which will ensure equities follow the same route. This will continue to drive interest rates up and potentially generate a collapse in all markets which will by definition include commodities. Will gold, and other precious metals, fall foul of this collapse or will it rise above the rest for all the traditional reasons included in ‘Safe Haven’ as the international monetary system is put to the test? The answer is probably hidden in the US$ and how it fares during this time, and whether it survives it’s ‘international reserve currency status’ or not.

The US$ index continues to decline slightly in a decline phase which could move either way in an Elliot Wave ABC corrective mode which suggests the correction is either complete or that the B wave is still in process to still generate a much lower C, before the next advance begins. The US$ Cots data indicates further weakness still to come.

Precious metals and all the ancillary associated charts are looking equally undecided, moving approximately opposite to movements in the dollar. Gold is currently in an upward corrective wave that is particularly sluggish and, once complete, will see value move down to the completion of the current bear market. There are many reasons for this upward correction to finally gain momentum (detailed in the main commentary), the most important of which is a continuing weaker dollar. But there are also negative impacts based really on silver which has begun to underperform gold.

 

US$

The US$ index declined this week after the recent high and looks likely to fall further because of oscillators rolling over. 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 longer term 12 month chart illustrates the dollar bouncing down from the resistance zone (blue), but closing above 10-Dema and hence not confirming a top yet. The wave structure strongly suggests the Elliot Wave corrective wave is far from complete and much lower C is likely to test much lower levels. The COTs data supports this as do the oscillators rolling over.

 

 

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

 

 

 

The 3 year weekly chart illustrates the dollar turning down at resistance with a bearish Star candle which indicates further weakness. If this corrective phase is to be multi-month (suggested by the timelines in the upward impulse wave structure) then we may well see the dollar test the 61.8% Fibonacci retracement level in line with the Sep 2017 low.

 

 

 

US Treasuries

The US bond market collapse has resumed although a short term relief reversal is possible with yield likely to move down between the blue horizontals.

 

 

The longer term 5 year weekly chart illustrates the end of the 35 year bond bear market and the start of the long term bull market at the cycle bottom at a yield of 1.37%. Yield has increased above 3.2% penetrating a number of H&S necklines in the process. This is likely to propel yield higher by the depth of the head to above 5% in the next phase.

 

 

 

Gold

The gold multi-month rally is still in very slow process, hemmed in by the sideways wedge. But with likely dollar weakness ahead and strong gold COTs data the rally is likely to gain some momentum. Gold therefore remains at a tipping point with the key support and resistance levels indicated.

 

 

The gold COTs data continues to indicate the bullish dilation which is likely to generate gold strength and by definition also a weaker dollar.

 

 

 

The longer term 12 month view illustrates the sluggish rally between well-defined support and resistance zones. There are 2 Doji-type candle closes which usually indicate a reversal, in this case up.

 

 

 

The US$ / Yen currency pair illustrates how the Yen has increased 15% against the dollar in this last week. This adds credence to a stronger gold price and weaker dollar.

 

 

 

HUI / Gold Ratio

The HUI / Gold ratio is holding it’s more positive structure, just. The H&S pattern continues to develop and the data ended on 2 consecutive bullish Engulfing candles, both presupposing better times ahead for gold.

 

 

 

GDX US miners ETF

The GDX chart is of course similar to the Hui:Gold ratio chart and it also exhibits a bullish Engulfing candle to close, promising a stronger gold price.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart displays virtually the exact opposite and is also developing a more positive bias with a potential bullish H&S breakout. It also ends on an Engulfing candle which promises a lower Dust price (and higher gold).

 

 

 

Silver

Silver has lost momentum this week and is now underperforming gold, which is negative for the whole complex. It has taken out lower key initial levels but continues to hold a positive diagonal support line (red). The silver COTs data continues to be bullish.

 

 

 

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 virtually a replica of the silver chart and commentary. So this is the worst aspect of the precious metals commentary.

 

 

 

Gold : Silver Ratio

The data has deteriorated this week due to the less better silver performance. It closed at 83.30 and is therefore still well above the bellweather level of 80.

 

 

 

General Equities

The Dow Jones has finally penetrated down through the rising wedge of the last period, and in so doing initiated a mini-collapse losing about 1000 points yesterday, or 3.5%. It penetrated the interim collapse support level at 25 750 and the final collapse support level awaits at 24 950. The climb up to the peak was based on ever lower energy levels with new lows continuing to increasingly outnumber new highs.

 

 

 

The recent negative trend on the New York Stock Exchange of new lows continuing to exceed new highs extended to more than 6 weeks in closing yesterday by a margin of minus -468, in what is now a strong signal that the market is collapsing.

The index closed at -468 yesterday.

 

 

 

The fractured character of non-confirmations across all platforms on the New York Stock Exchange has finally started to act in unison as the Dow Jones fell in line with other major indices like the S+P500 and Nasdaq as the US market begins to collapse. This mini-collapse is now likely to start declining in earnest to mirror the already long-standing collapse in the US bond market.

The first serious support level on the Dow Jones will be encountered between 23 600 and 23 250, about another 8% further down.

 

 

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