Home > Currency, Equity, Gold > Midweek Market 25 Oct 2018

Midweek Market 25 Oct 2018

Oct 25th, 2018

Executive summary

World equities are beginning to roll over in response to their overwhelmingly precarious positions as a new different dynamic starts to grip the markets with various ‘flight to safety’ mechanisms becoming increasingly apparent. Equity wave structures are defining the shape of things to come and the markets are starting to collapse with money moving into the US$, the bond market, and the beginning of a revival in metals and miners.

This is manifesting in the start of a countertrend relief rally in US bonds and a strengthening US$, while oversold (and neglected) metals and miners are beginning to move up slowly. This is all consistent with both the gigantic fundamental and technical issues plaguing markets in parabolic debt levels, interest rate cycle turning up, and over-valued assets in over-valued currencies.

The US$ index continues to strengthen and has a breakout through a H&S pattern which could propel the dollar to $98 which would trigger a larger H&S to take the dollar to $104. US$ Cots data and the stronger Yen suggest this will not happen quickly and that the gold rally is likely to complete first before an ultimate stronger dollar.

The Gold rally is continuing although there are a number of negative impacts suggesting that progress will be hampered before the rally gets underway again. The strongest of these is the silver underperformance of gold which continues to retard performance of the whole precious metals complex.



The US$ index breaks up through a H&S pattern indicating continued strength toward $98. This is consistent with collapsing equities although the Slow Stochastic seems to be topping out. The Cots data suggests some weakness ahead which keeps alive the question as to whether the Elliot Wave ABC correction is complete, or not, and whether the B wave is more complex and still in process to generate a much lower C.




The US$ COTs data chart illustrates the wider dilation which is consistent with a weaker dollar, which should therefore decline in value.




The 3 year weekly chart illustrates the larger H&S which is developing, and if price advances to $98 then this will activate and propel the dollar to $104. The higher price level of $104 is consistent with the still much lower gold price which is likely to decline towards $1000 or $900 once the gold rally has terminated.

The jury is therefore still out as to dollar value in the short term.




Japanese Yen

One of the major currencies making up the US$ index is the Yen which has been strengthening through the month of Oct. In the process it has developed an inclined H&S which if penetrated will result in a short term weaker dollar and stronger gold price.




US Treasuries

The US bond market collapse continues although a countertrend relief rally has developed with impetus from collapsing equity prices. This is likely to test the diagonal support line (red) before the main bond market collapse resumes to eventually much higher yields.

The oscillators are dropping in support.




The US 10 year Treasury Cots data chart illustrates the wide dilation which will propel prices higher, which by definition means lower yields. This is consistent with the countertrend relief rally.





The Gold multi-month rally continues after the breakouts, although it closed yesterday on a threatening Harami candle. The oscillators are overbought and indicate the potential for a reversal although sentiment remains bullish with still positive Cots data.



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




South African Rand

The South African Rand is developing a H&S pattern against the US$ and needs to strengthen to penetrate the neckline which will propel the ZAR to R12.50. The oscillator positioning suggests penetration is unlikely, and the Cots data supports that view.



The ZAR cots data indicates the Commercials long the dollar and short the Rand which is consistent with the bullish reverse dilation indicating a continued stronger dollar and weaker ZAR.



HUI / Gold Ratio

The HUI / Gold ratio has lost some momentum, turning down at resistance at the level of 0.1276. The chart structure is still intact and the H&S breakout is likely to propel the ratio up to a level of 01375, well into resistance. The oscillators are peaking and therefore this might take a while longer to achieve.



GDX US miners ETF

The GDX chart is of course similar to the Hui:Gold ratio chart and it also exhibits similar commentary, although slightly less bearish. Once momentum starts to build again it may well generate it’s own energy as the miners lift the gold price as the gold price lifts the miners.



DUST US Gold Miners Bear Index

The Dust chart displays virtually the exact opposite and is positive for US miners if it declines. It too has lost momentum with oscillators turning up with a delay in positive moves for gold and miners.




Silver regained some momentum this week but still continues to develop a H&S pattern which remains incomplete. Silver continues to underperform gold and this remains the strongest impact resisting any meaningful advance in the precious metals complex.

The neckline is at $14.97 which remains the key level to be breached. Penetration of this level will assume ignition force, and at the same time the diagonal support needs to be held.




The silver COTs data remains very positive with continued bullish reverse dilation, indicating silver strength and likely stronger rally.



Gold : Silver Ratio

The data deteriorated again very slightly this week due to silver’s non-confirmation of the gold rally. It closed at 83.89 although there appears to be potential for a consecutive lower high with a diagonal resistance line developing (blue). Much may develop in the next period.



General Equities

The Dow Jones bear market collapse is underway having now penetrated the key support levels at 25 760 and 24 950, with the oscillators dropping substantially. The general equity markets have turned solidly bearish.




The negative trend of narrow low energy persists on the New York Stock Exchange with new lows continuing to exceed new highs. The lethargic bear market rally has terminated and new lows are exceeding new highs massively to signal a continued market collapse, closing yesterday at -458.



The market collapse on the New York stock exchange is now in unison, with all the major indices displaying the same negative signals. The Dow closed below 200 day moving average for the first time in a long time. The first real zone of support is now only 4% below current levels.



The longer term 3 year weekly illustrates penetration of the H&S pattern which is likely to propel the index down to the next major region of support.




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