Market Demons

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.

 

 

 

Executive summary

Global equities are now moving into a bear market as they react to all the negative impacts that have been building for some while now. Using the Dow Jones Industrial Average as a proxy for activity in US equities one can gauge the stage in the collapse which is also finally moving in sympathy with the US bond market which already started a long term bear trend in mid-2016 as the interest rate cycle began to turn up. Using the US 10 year Treasury as a proxy for the US bond market one can see the beginning of a long term bear trend from mid-2016 at the end of a 35 year bond bull market that is likely to collapse all asset values in it’s path as the yield continues up.

In accordance with Elliott Wave Theory the Dow is now moving down after completing an ABC correction up and is in the process of declining impulsively in the powerful 3rd wave down that will envelop the previous low and drop significantly in a longer and stronger wave that is likely to test many supports lower down. There is still no ‘panic’ in the markets but the next period is likely to start changing some thoughts and market commentaries.

The US$ index has completed a 5 wave move up and is set to decline into a multi-month weakening cycle which will provide the necessary boost to the gold multi-month rally which has yet to witness any real energy. The extreme bearish investor sentiment in precious metals plus extreme bullish Cots data will add extra power to the expected gold rally. This gold rally is countertrend and will be followed by yet lower prices before the start of the gold bull market which is probably not too far off, and is likely to coincide with the termination of US Fed rate hikes.

 

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. The oscillators are mixed and the decline may therefore be jerky.

 

 

 

One of the powerful motivators for near term dollar weakness is the extreme investor optimism and the Cots data illustrating the Commercials increased short positions and Large Speculators increased long positions which reflects in the ever widening dilation in the graphic. This portends a drop in dollar value.

 

 

 

The 3 year weekly chart illustrates the start of the dollar decline after the bearish Star candle, similar to 3 months ago, which is likely to reduce dollar value towards the bottom of the support zone below 50-Wema.

 

 

 

US Treasuries

The US 10 year treasury yield continues to move sideways to down in a temporary interruption to the main up trend. US bonds continue to collapse into a long term bear market and this interruption could terminate at any time. The oscillators have been dropping aggressively which could support a turnaround with yield readying to turn up again.

 

 

 

Gold

Gold turned up aggressively off the diagonal support (red) in line with the recent weaker dollar which has provided some impetus to the gold rally gaining momentum and closing above 50-Dema. The extreme investor pessimism, as reflected in the bullish Cots data, indicates that the gold rally is likely to now start building increased energy and momentum.

 

 

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 recent increase in momentum but price has closed on the diagonal resistance line (blue). Obviously, this resistance line needs to be penetrated if any impact is to made on the short term resistance zone, and the key breakout level at $1246 is some way off yet. The oscillators are supporting more upward movement.

 

 

 

South African Rand

The US$ / ZAR currency pair is forming a distinct reducing wedge pattern which suggests an upside breakout (Rand weakness). Obviously, expected dollar weakness will lead to ZAR strength first and a breakout down instead. Politically and economically conditions in South Africa invite a weaker currency, and the impending constitutional change to enable land expropriation without compensation is likely to aggravate ZAR devaluation. Rand key levels are $13.87 for strength and $14.84 for weakness.

The oscillators are mixed.

 

 

 

HUI / Gold Ratio

The ratio is building positive momentum with the first close above 50-Dema in 21 trading days. Both oscillators are supportive and rising.

 

 

 

GDX US miners ETF

The GDX chart is similar to the HUI/Gold ratio with similar commentary. US gold miners are building momentum with a breakout through the first key level at 19.84. Both oscillators are supportive and rising.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart is accelerating it’s downside bias and has a breakout through the first key level at 30.45. Both oscillators are supportive and dropping.

 

 

 

Silver

Silver has bounced strongly off it’s new low and the rally looks like it could be igniting as it moves to test the diagonal resistance (blue line). The key initial level is still some way off yet at $14.95, but the oscillators are supportive of further price gains. Extreme investor pessimism persists with continued positive Cots data, which suggests that we may soon get higher prices.

 

 

 

The silver COTs data remains very positive with continued bullish convergence pattern indicating silver strength and likely start of a rally.

 

 

 

Gold : Silver Ratio

The ratio improved slightly to close at 84.68, still remaining well above 80. Silver continues to underperform gold which is negative for the whole complex, but there appear to be indications that this may now start reversing.

 

 

 

General Equities

The Dow Jones has declined to a key breakdown level at about 24 400. All indications are that wave 3 in an impulse 5 wave down is in progress and penetration of this level will trigger the full force of this wave structure. The oscillators are dropping in support of this.

 

 

 

The VIX volatility index is beginning to cluster at higher levels as the US equity bear market begins to bite. This is usually an indication of either much higher or much lower prices to come.

 

 

 

The Dow 12 months chart illustrates the major negative divergence that has developed between price and the MACD, with price up and MACD down between Jan 2018 and Oct 2018. This will propel the Dow down strongly.

The key breakdown level is at 24 400 and the powerful wave 3 down will be triggered as this level is breached decisively. The oscillators are dropping in support of this.

 

 

 

A 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.

 

 

 

 

Executive summary

The US midterm election result is fully digested and markets have continued to take up from much where they were before the looming election started to impact.

US equities have started to roll over as the bear market begins to unfold, the US$ has stalled in it’s advance, and the bond market continues it’s relentless collapse. Precious metals and much of the resource market is beset by extreme investor pessimism as are US equities and the dollar beset by extreme investor optimism with still no sign of any recognition of the perils that lie ahead.

In accordance with Elliott Wave Theory the ABC correction up in the US equity market is complete and the stronger and longer 3rd wave is now in progress in the 5 wave impulse wave down. The US$ has completed a 5 wave move up that completes a 61.8% Fibonacci retracement of the decline from Jan 2017 to Feb 2018, which is likely now to reduce dollar value and provide the necessary boost to the gold multi-month rally which has yet to witness any real energy. The extreme bearish investor sentiment in precious metals plus extreme bullish Cots data will add extra power to the expected rally.

 

US$

The US$ index experienced a clear 5 wave advance from the low in late Sep 2018 which now promises a decline into the strong developed support base which is likely to reach the region of 200-Dema, or even probably lower to 93.80.

 

 

 

The US$ COTs data chart illustrates the continued wider dilation which is consistent with a weaker dollar, which should therefore decline in value. Dollar strength has been defying this but should now begin to move lower.

 

 

 

The 3 year weekly chart illustrates how the dollar has stalled with a bearish Star candle, similar to 3 months ago, having completed a 61.8% Fibonacci retracement of the drop from Jan 2017 to Feb 2018. The threatening H&S patterns have been voided for the time being and the decline should now extend through 50-Wema.

 

 

 

Japanese Yen

The US$/Yen currency pair has topped out at a lower high, indicating Yen strength, and together with oscillator support is now likely to decline further to 200-Dema. Although the link between Yen strength and gold strength is likely to wither through time, for now it still indicates a stronger gold price.

 

 

 

US Treasuries

The US 10 year treasury yield continues to move sideways to down in a temporary interruption to the main up trend. US bonds continue to collapse into a long term bear market and this interruption could terminate at any time. The oscillators are supporting a continued interruption.

 

 

 

Comparison between consumer sentiment and gold

The University of Michigan Consumer Sentiment Index peaks during the good times and troughs during the hard times. It also holds the key to the next major Gold bull market because, as you can see, there is a negative correlation. Therefore the next trough in the index will propel gold to the next peak.

If, as is now expected, the US equity market is in a bear trend ushering in the hard times, then it will also usher in the next gold bull market.

 

 

 

Gold

Gold turned up at the diagonal support with a Doji candle which supports a low. This is also supported by the oscillators turning up. Also, extreme investor pessimism, as reflected in the bullish Cots data, indicates that the gold rally is likely to now start building increased energy and momentum.

 

 

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 clear 6 week up cycles supported by the red diagonal which in the next cycle is likely to break new ground. The oscillators are supporting the next up cycle.

 

 

 

South African Rand

The US$ / ZAR currency pair breakout through the neckline of the H&S neckline has been voided, and in so doing is forming a large reducing wedge. The expected dollar weakness will lead to ZAR strength first, although the reducing wedge may lead to upside breakout to weakness eventually. Rand key levels are $13.87 for strength and $14.84 for weakness.

The oscillators are turning sideways to up, and are somewhat mixed and not totally supportive either way.

 

 

 

HUI / Gold Ratio

Both the up and down H&S patterns have been voided as the ratio closed on a bullish Engulfing candle in a chart structure that is beginning to look increasingly bullish. The next key breakout level is 0.1237. Both oscillators are beginning to turn up slowly.

 

 

 

GDX US miners ETF

The GDX chart is similar to the HUI/Gold ratio with similar commentary. US gold miners are moving to breakout from a consolidated bottom and closed on a bullish Engulfing candle. The next key breakout levels are 19.84 and 20.55, and both oscillators are beginning to turn up slowly.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart is holding it’s positive bias and also closed on an Engulfing candle, supporting GDX improvement. Key breakout levels are at 30.45 and 27.70, and the oscillators look like they may be turning down in support of improvement.

 

 

Silver

Silver dropped to a new low against no new low for gold, as the 3 month non-confirmation mode continues. Silver continues to underperform gold which continues to affect the whole precious metals complex negatively. However, extreme investor pessimism persists with continued positive Cots data, which suggests this situation may end soon.

Silver’s key breakout level is $14.95 which is now some way off, and which remains the key level to be breached.

 

 

 

The silver COTs data remains very positive with continued bullish convergence pattern indicating silver strength and likely start of a rally.

 

 

 

Gold : Silver Ratio

The data deteriorated this week to close at 85.94 remaining well above 80. Silver continues to underperform gold which is negative for the whole complex.

 

 

General Equities

Before looking at the Dow Jones charts it is well to remind ourselves of the relationship between equity prices and interest rates. In fact all asset prices and interest rates. In general, when interest rates go up asset values come down, and vice versa. “People can have either a rising stock market or rising interest rates. They cannot have both, although we could have falling stock markets and falling interest rates” Keith Weiner.

Interest rates in the US peaked in 1981/82 at about 15% which ushered in the best investment opportunity, probably ever. They bottomed in mid-2016 and ushered in the worst investment opportunity, probably ever.

During these times, US bonds entered a bull market in 1981 that lasted 35 years until mid-2016. Since then they have been in a long term bear market which as it gathers momentum will wipe out all asset values in it’s path. One of those asset values is the stock market which in the US has ignored these signals and bungled on merrily. Consider the charts below which include the Dow Jones above and the benchmark US 10 year Treasury yield below. Notice the negative correlation and especially how the 10 year bond collapses after mid-2016 in higher yields and how the Dow Jones continues higher in an ever worsening investment environment.

The collapse of the US stock market is a given, together with the collapse of world stock markets and everything that goes with that.

 

 

 

The Dow Jones short term 3 month chart illustrates completion of the upward ABC correction, establishing the 1 and 2 (red). This leads to the downward wave 3 which is longer and stronger and should yield much lower prices in due course. The oscillators are dropping in support of this.

 

 

 

The longer and stronger 3rd wave down is in progress and this will penetrate 1 and lead to the next phase of testing all the break points (red circles) and the support base itself (solid red). The oscillators are dropping in support of this.

 

 

 

The 3rd wave new bear market is underway, and a H&S pattern is developing which when activated will propel the index down 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.

 

 

 

 

 

 

Executive summary

The US midterm election result is in with the Republicans retaining control of the Senate and losing control of the House of Representatives. This is in line with expectations and the ‘big money’ seems to like it with a strong hike in equities. Obviously Donald Trump’s governing technique will need to change with some considerably increased Democratic pressure coming from the House, and the election result will probably need a while longer to digest the full impact.

US equities have corrected up strongly since the recent low on 29 October with a particularly strong push yesterday. The Dow Jones has moved up far more prominently than the other major US indices, retracing 73% of the downturn since the peak early in October. This celebration type surge is reminiscent of market reaction to Trump’s initial election in 2016 and is probably the reaction to the cheer of seeing the retention of the Senate as a victory. We need more time to digest the result.

In accordance with Elliott Wave Theory the current correction up is an ABC pattern after the initial impulse wave down from the peak, and the next day or two will determine the extent of the correction. The almost inverse reaction will be seen in the gold market.

The US$ index has started to weaken with support from extreme bullish sentiment and US$ Cots data, although the Gold rally continues to be lethargic partly due to silver underperformance. Precious metal investor sentiment remains extremely bearish while Cots data remains bullish, both of which presuppose higher prices going forward.

 

US$

The US$ index has weakened and invalidated the H&S breakout in the process. It has 3 consecutive closes below 10-Dema which could confirm a top, although ending on a Doji candle which indicates indecision and a potential reversal up again. The oscillators are dropping in support of further weakness and the Cots data agrees with this.

This 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 lower C, towards 93.80 which is in the region of 200-dema.

 

 

 

The US$ COTs data chart illustrates the continued wider dilation which is consistent with a weaker dollar, which should therefore decline in value. Dollar strength has been defying this but in dropping now agrees with this.

 

 

 

The 12 month chart illustrates the potential to drop down to 200-dema from the bearish double top, with oscillators dropping in support.

 

 

 

US Treasuries

The countertrend relief rally in the US 10 year treasury could have ended with yield likely to continue higher, as US bonds continue to collapse into the long term bear market. The Slow Stochastic may be topping out but the MACD is still rising strongly in support.

 

 

The 10 year US Treasury long term 40 year chart illustrates yield edging up through the upper trendline en route to higher yields in due course. Penetration of the H&S, already achieved, indicates initial advance should reach 5%, being an increase equal to the depth of the head. Being a long term cycle, yield is likely to exceed this by a factor of 2 or 3, coming as it does from yield exceeding 15% in 1983.

 

 

 

Gold

The Gold rally continues to consolidate as it closes on 10-Dema with a Doji candle, and any serious advance needs increased investor sentiment and a lower dollar. Without this, prices are likely to roll over soon. However, the Cots data remains bullish with very low investor sentiment, both of which assume higher gold prices, but the oscillators are drifting and not supportive.

 

 

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 price consolidation below resistance with the need to break through the diagonal (blue) and test the next breakout level at $1246. Failing this, prices will roll over and test the support region (red).

 

 

 

South African Rand

The US$ /ZAR currency pair has broken down through the neckline of the H&S and a key resistance / support trendline. This will herald a stronger SA Rand and a weaker US$. Technically, the SA Rand will strengthen towards R12.50 which is equivalent to the height of the head.

The Slow Stochastic is reaching the bottom of it’s range although the MACD has further to drop, which means the oscillators are somewhat mixed and not totally supportive.

 

 

 

The ZAR cots data indicates continued reverse dilation which is consistent with a continued stronger dollar and weaker ZAR which is inconsistent with the above assment.

 

 

 

HUI / Gold Ratio

The HUI / Gold ratio has stalled to close below 10-Dema, in a pattern with neutral bias. The H&S breakout has been invalidated and a new bearish H&S is threatening to develop. Both oscillators are drifting in support of the sideways drift of the ratio which continues to be midway between support and resistance.

 

 

 

GDX US miners ETF

The GDX chart is more positive with the H&S breakout valid again, and there is no threatening bearish H&S pattern in the opposite and negative direction. However, the upside needs to test the key breakout level at 20.55 otherwise it will be subject to testing support. The oscillators are drifting with no particular bias.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart is positive with the H&S breakout valid again, and there is no threatening bearish H&S pattern in the opposite and negative direction. There is a distinctly positive bias to the chart pattern indicating downside sooner than upside which is positive for US miners. However, the oscillators are drifting with no particular bias.

 

 

Silver

Silver is locked between support and resistance in coiled mode that is likely to breakout energetically in either direction. Silver continues to underperform gold which continues to affect the whole precious metals complex negatively, but price mode recently suggests this might now be starting to change.

Resistance neckline is at $14.95 which remains the key level to be breached. Penetration of this level will assume ignition force, and at the same time the diagonal support will be breached.

 

 

 

The silver COTs data remains very positive with continued bullish convergence pattern indicating silver strength and likely stronger rally.

 

 

 

Gold : Silver Ratio

The data improved slightly this week but remains well above 80 to close at 84.34. Silver continues to underperform gold which is negative for the whole complex.

 

 

  

General Equities

The Dow Jones is correcting up strongly at the moment in an ABC pattern which, once complete, will established the 1 – 2 that will lead down into the powerful 3 wave down which is always the longest and strongest.

 

 

 

The negative trend of narrow low energy on the New York Stock Exchange reversed this week during the strong corrective ABC wave up, which is consistent with rallies in a bear market. The market closed yesterday (in recovery mode) with new highs exceeding new lows by a margin of +29.

 

 

 

US equities corrected up strongly since the recent low on 29 October with a particularly strong push yesterday. The Dow Jones has moved up far more prominently than the other major US indices, retracing 73% of the downturn since the peak early in October. Once complete, this corrective wave up will lead to a strong wave 3 down to test to the next prominent support level (red) in testing all the break points in the red circles.

 

 

 

Executive summary

The US markets seem to be developing into a near repeat of the run up to the US presidential election in Nov 2016 when nervous capital stalked the market in Sep/Oct before the election. Gold bounced in Oct, Trump won, fear collapsed, and capital pounded into stocks and out of gold. Will Trump maintain his position in the mid-term election or will the Democrats take something back? If not, general equities will probably rally strongly and gold will sink into the Dec rate hike, or perhaps a compromise somewhere in between.

In accordance with Elliott Wave Theory ‘news’ does not move markets, and the wave structures are indicating the start of a serious bear market which is now upon us. The initial 5 wave down is complete and the market is now correcting up in an ABC pattern which is likely to top on election day (6 Nov 2018).

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 $104. Extreme bullish sentiment and US$ Cots data indicate this will not happen quickly and that the gold rally is likely to complete first before an ultimate stronger dollar.

The Gold rally is suffering a setback this week with all the precious metal and ancillary charts looking weaker. But, adverse sentiment and the Cots data indicate this is temporary before the rally gets underway again. The strongest of these remains the silver underperformance of gold which continues to retard performance of the whole precious metals complex.

 

US$

The US$ index is rampant, breaking up strongly through a H&S pattern that will likely propel value toward $98. This is consistent with collapsing equities although the oscillators are topping out, especially the Slow Stochastic. 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 continued wider dilation which is consistent with a weaker dollar, which should therefore decline in value. Dollar strength is defying this at the moment.

 

 

 

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.

 

 

 

US Treasuries

The countertrend relief rally in the US 10 year treasury continues to edge along although evidence now suggests increasingly that it may end soon, such as the Cots data and oscillators beginning to turn up. The main bond market collapse may therefore resume soon as it then begins to increase yield.

 

 

The US 10 year Treasury Cots data chart illustrates the wide dilation beginning to reduce which indicates the potential end to the countertrend relief rally. This means yield will start increasing again as the US bond market resumes it’s collapse.

 

 

 

Gold

The Gold rally has dissipated with price dropping this week down towards support with the overbought oscillators dropping which indicates the potential for further declines. However, sentiment remains bearish and the Cots data bullish which both indicate higher gold prices.

 

 

The gold COTs data continues to indicate the bullish convergence which will support higher gold prices and, by definition, also a weaker dollar.

 

 

 

The longer term weekly 3 year chart illustrates the price decline this week supported by rising oscillators supporting higher gold prices. A key breakout level is at $1246.

 

 

 

South African Rand

The developing H&S pattern in the US$ /ZAR price has dissipated for the time being, removing the threat of a stronger SA Rand for now. The breakout levels are Zar15.10 for a weaker Rand and Zar14.00 for a stronger Rand. The oscillator positioning suggests penetration at Zar14 is unlikely, and the Cots data supports that view.

 

 

 

The ZAR cots data indicates continued reverse dilation which is consistent with a continued stronger dollar and weaker ZAR.

 

 

 

HUI / Gold Ratio

The HUI / Gold ratio has lost more momentum in voiding the earlier H&S breakout. The ratio turned down from resistance and is now threatening a H&S in the opposite and negative direction. The chart structure is still intact between support and resistance and the HUI needs to build momentum all over again. The oscillators are mixed although the Slow Stochastic is turning up.

 

 

 

GDX US miners ETF

The GDX chart is of course similar to the Hui:Gold ratio chart and it also exhibits similar commentary, although less bearish. In fact it can be said to have a positive bias, and no threatening H&S pattern in the opposite and negative direction.

 

 

 

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

Silver lost the momentum gained during the previous week and continues to underperform gold which 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 convergence pattern indicating silver strength and likely stronger rally.

 

 

 

Fractal Silver vs US$ comparison

Conventional wisdom indicates a stronger dollar and weaker silver price going forward, give or take an Elliott Wave silver rally in the short term first. However, a fractal analysis of the 2 indicate a very different picture. Observe the charts below.

 

 

 

The $silver price created a pattern during the years 1998 – 2003 that is described by the numerals 12345, before the major breakout that took price from $5 to $50 in 2011. On a fractal comparison basis virtually the identical pattern has been created in the period from 2011 to now, also described by the numerals 12345, which suggests an equally powerful breakout is soon to follow.

Now look at the US$ chart over the same time frame. Notice the following:

• The silver price increased from 3 to 5 from 2002 while the dollar declined substantially during the same period between dotted green verticals. The dollar created a major topping pattern at that time that took dollar value from 120 down to 70 (red arrow).
• Now jump to 2016 and notice the identical silver increase from 3 to 5 while the dollar drops between the green dotted verticals. The dollar also created a major topping pattern.

Is this the prelude to another major silver breakout to take price up by a factor of 10 and the dollar down by 40%????

  

Gold : Silver Ratio

The data deteriorated again this week with the ratio closing higher at 85.07, creating a double top. Silver continues to underperform gold which is negative for the whole complex.

 

 

 

General Equities

The Dow Jones bear market collapse is underway having completed the 1st impulse 5 wave down, and is now correcting up in an ABC pattern that could top by the US election day on 6 November. Once this corrective wave up is complete it will have established the 1 – 2 that will lead down into the powerful 3 wave down which is always the longest and strongest.

 

 

 

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 closed yesterday (in recovery mode) with new lows exceeding new highs at -117. The chart is still signalling a massive collapse ahead (red diagonal).

 

 

 

The collapsing Dow is developing a strong H&S pattern which, when penetrated, will the index down to the next prominent support level (red) in testing all the break points in the red circles.

 

 

The longer term 3 year weekly chart illustrates the developing H&S pattern which is likely to drop the index down to the first level of support (red). Below this level there is little support due to the rampant bull market earlier.