Midweek Market 29 Nov 2018
Executive summary
US equities rallied strongly yesterday (Wednesday 28 Nov) because a dovish Jerome Powell of the US Federal Reserve indicated a possible end to the rate hike cycle very soon. Using the Dow Jones Ind. Ave. Index as a proxy for US equity behaviour, it would seem, although the rally had started 2 days earlier, investors managed to push the market up some 600 points on the day to levels which are likely to fluctuate within a range before terminating the countertrend advance and dropping into the next wave down to new lows in the ongoing bear market.
There is still virtually no acceptance or understanding of the current bear market in equities and this is why there is still no panic whatsoever. Much of the ‘big money’ in trading volumes is driven by robot computer algorithms and margin debt:
- Algorithms are programmed to ‘buy the dips’ in a bull market. So, nothing much will change until this recognition is reversed and the algorithms are programmed to ‘sell the peaks’;
- Margin debt has increased parabolically over the last 10 years, and in a rising market this is the leverage to power it up higher. But in a declining market, it becomes ‘white hot’ as traders are forced to sell to cover margin calls, and it becomes rocket fuel to power a massive market decline;
The benchmark US 10 year Treasury wave structure indicates a sideways consolidation phase since the start of Oct may now resolve into increased yields again as the long term bond bear market continues.
The US$ index declined yesterday, in sympathy with the US Fed comments to potentially end the rate hike cycle soon, as it declines into a multi-month weakening cycle. It is said that the next gold bull market is not likely to start until the end of the rate hike cycle which therefore adds impetus to the multi-month gold rally which is now likely to energise along with extreme bearish investor sentiment in precious metals plus extreme bullish Cots data.
US$
The US$ index has started a multi-month decline, after the clear 5 wave advance from the low in late Sep 2018, which is likely to test the lower regions of the support base around 200-Dema. There is a prominent bearish Engulfing candle at yesterday’s close which will propel the dollar lower, as it declined in sympathy with the US Fed comments to potentially end the rate hike cycle soon. The oscillators are turning down in support of this.
One of the powerful motivators for dollar weakness is the extreme investor optimism and the bearish Cots data which reflects in the ever widening dilation in the graphic. This is a powerful motivation for a drop in dollar value.
The 12 month daily chart illustrates prominent negative divergence which is another powerful indicator of the start of a multi-month decline phase which is likely to potentially drop dollar value well below 200-Dema (probably towards $93.80).
The 3 year weekly chart illustrates 3 recent bearish Star candles stalling the US$ advance below the resistance zone. Observe both oscillators turning down in support of a decline which will probably take the dollar down below 50-Wema towards the bottom of the support zone.
US Treasuries
US bonds continue to collapse into a long term bear market as yield on the benchmark US 10 year treasury (1 year daily chart) looks like completing a 2-month long sideways consolidation before turning up again, with both oscillators bottoming in sympathy.
The 5 year weekly chart illustrates the continued bear market (red diagonal arrow) with a collection of penetrations through H&S patterns (3 small black circles) up to the 2 month sideways consolidation (blue circle). Yield is likely to now continue increasing to complete a wave structure before the next correction.
Gold
Gold turned up with yesterday’s US Fed comment (and weaker dollar) as the multi-month rally moves sideways to up with limited energy. The extreme investor pessimism and bullish Cots data is however likely to provide more energy soon, especially as the US$ decline unfolds.
The gold COTs data continues to indicate the bullish convergence which will support higher gold prices and, by definition, also a weaker dollar.
The 12 month chart illustrates the need for gold to penetrate the diagonal resistance line as it then needs to test the key breakout level at $1246.
South African Rand
The US$ / ZAR currency pair broke down through the key Rand strength level, through the bottom of the reducing wedge pattern, as it established a new Rand strength level at $13.72. Expected dollar weakness will lead to Rand strength first although South African political and economic weakness will tend to reverse this. This retards share performance of SA Rand hedge shares, and the ZAR key levels are now $13.72 (strength) and $14.84 (weakness).
HUI / Gold Ratio
The ratio reacted positively to yesterday’s US Fed comments with US miners rising more than gold. It closed on a bullish Engulfing candle which will lead to more strength. The key breakout levels are at 0.1245 and thereafter 0.1291. Both oscillators are supportive and turning up.
GDX US miners ETF
The GDX chart is similar to the HUI/Gold ratio with similar commentary. US gold miners are starting to build momentum and also closed on an Engulfing candle which will lead to more strength. The key breakout levels are at 19.95 and thereafter at 20.55. Both oscillators are supportive and turning up.
DUST US Gold Miners Bear Index
The Dust chart is equally similar with similar commentary, except in the opposite direction being a US miners bear index. The downside bias is accelerating and also closed on an Engulfing candle which will drop values further. The key breakout levels are at 29.50 and thereafter at 27.70. Both oscillators are supportive and turning down.
Silver
Silver also reacted positively to the US Fed’s comments yesterday, but maintains a negative-looking chart as it still continues to underperform gold. But extreme investor pessimism and positive Cots data continues which will trigger optimism in the silver chart soon. It desperately needs to also penetrate the diagonal resistance line which in the process will break through the first key breakout at $14.53, and hopefully lead on to the important key breakout at $14.95.
Both oscillators have turned up in support.
The silver COTs data remains very positive with a continued bullish convergence pattern indicating silver strength and likely start of a rally.
Gold : Silver Ratio
The ratio increased this week to 85.42 (negative) as silver continues to underperform gold. It continues to remain well above 80 and continues to be negative for the whole precious metals complex.
Both oscillators are turning down in support of a lower ratio (positive) and as the dollar continues to weaken so too will the whole complex improve.
General Equities
The Dow Jones increased some 600 points yesterday and is likely to fluctuate within a range between 25 400 – 25 800 before dropping into the next wave down to new lows below 24 400, as it continues in it’s secular bear market. The oscillators are rising in support of continued fluctuation and turbulence before the main trend continues.
The Dow 12 months chart illustrates the major negative divergence between price and MACD which is the main driver to eventually propel the Dow down strongly.
The key breakdown level is at 24 400 which is the tipping point for much lower prices. However, the oscillators are rising and therefore some fluctuations and turbulence will occur first.
A major wave 3 in the new bear market is underway, and as this develops it will activate a H&S pattern which will propel the index down another 3000 points, being the height of the head projected down below the neckline. This will easily penetrate the support base (solid red) and drop the index down towards 200-Wema.
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