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Midweek Market 7 March 2019

Mar 7th, 2019

Executive summary

A number of issues overhang the markets:
• The US equity countertrend rally is due for a decline after the lengthy rally from Dec 2018;
• US Treasury yields are ready to resume their advance after stalling in Oct 2018;
• US dollar remains below the Nov 2018 high in its long term weakening but is poised to move either above that level or further down, depending on alternative potential;
• Precious metals are weakening after a near 7 month advance to just shy of the 5 year basing pattern neckline;

This is all within a deteriorating global background of slowing economic growth, escalating trade wars or deals, and mounting global debt, in the late stage of the current credit cycle. We await the next US Fed meeting on 20 March for clues regarding the tipping point between QT and QE, and how this may impact all the above.

As this is written, a new ‘easing’ package is announced by Mario Draghi at the ECB to counter economic slowdown in the EU.

These are just some of the issues overhanging the markets, and they remain relatively ‘trendless’ until some of these issues are resolved.

US Dollar

The dollar continues to decline within a bearish reducing wedge formation, whilst the longer term trend towards weakness remains in place. Although this is threatened by an Elliott Wave short term alternative option which is, as yet, unconfirmed.

The Elliott Wave alternative count has it that the dollar is in a triangle pattern which could propel the dollar index towards $100.00, based on the completion of the (A)(B)(C) pattern. A decline below $95 will tilt the odds towards weakening and the formal count, whilst an increase above $97.20 will tilt the odds towards strengthening and the alternative count.

The 12 month chart illustrates the dollar advancing towards resistance at $97.20, beyond which the stronger dollar count will be triggered. The chart does also reveal the negative divergence which will propel the dollar towards weakness.

The short term 3 month chart illustrates the price moves since completing the Elliott Wave ABC pattern. This should normally have seen dollar weakness, which still applies, until an advance above $97.20. Key trigger levels are at the top of support ($95.00) and at the bottom of resistance ($97.20).

Japanese Yen

The US$ / Jap Yen currency pair continues rising in a $ bear flag, pushing up into resistance, reflecting Yen weakness as the dollar strengthens. Both oscillators have strengthened considerably, with the Slow Stochastic at the top of its range, and this should in due course see Yen strength, dollar weakness, and higher gold price as and when there is a breakout from the flag. Until then, the confines of the flag remain in place with the added threat of a sharply higher dollar, as previously described.

US Treasuries

The benchmark US 10 year Treasury yield is trending sideways for now against the Elliott Wave expectation of an increase as wave (iii) starts. The wave (iii) start is sluggish but the small-degree 4(circle) is next to enjoy a 5 (circle) advance, as the wave (iii) develops further. This is wave (iii) of 3 which should in time gather length and strength.

Gold

The 5 year gold chart illustrates the 6-month cycle lows, with the next cycle low due now as gold retraces its recent strong advance. it can also be seen that the decline since the start of 2018 has been propelled by ever-lower volumes which does not auger well for price strength.

Gold is dropping rather quickly towards support in the long term 3 year chart. The oscillators are both dropping in support of further price declines.

The 12 month chart illustrates gold dropping down into the 1st support zone, with every likelihood of dropping down further into the 2nd support zone. The gold price is still above 200-Dema which might provide additional support at $1276.
Both oscillators are dropping in support of lower gold prices, although the Slow Stochastic is down at the bottom of its range which might suggest further price decline hesitancy, for a while.

The 3 month gold chart illustrates the rapid price decline towards the new support level at $1276, where the gold price may get additional support from 200-Dema (at about $1270).

South African Rand

The South African Rand continues to weaken against the dollar as it edges out of the reducing wedge pattern. Note the additional rising wedge pattern beginning to form which may, alternatively, result in a stronger Rand when price drops through the bottom against a weaker dollar if the alternative Elliott Wave count does not materialise.
For now though, both oscillators are rising in support of further Rand weakness. Also, political and economic fundamentals are not improving yet with South Africa and Eskom and much depends on Moody’s rating on 29 March.

HUI / Gold Ratio

The ratio has started to decline meaningfully, and it is likely to penetrate the support zone. It has closed at the region of the moving averages and may receive some additional support there.

HUI Index

The HUI index itself is behaving in similar fashion with the likelihood of further price declines. Whilst closing at 200-Dema, the HUI index is likely to get small support as it moves further into the support zone with both oscillators dropping.

GDX US miners ETF

The GDX 12 month chart is similar to the HUI Index chart except it is yet more positive in its bias, and also still further above 200-Dema. But nevertheless it looks like the next stop is at 20.2 en-route down into the support zone.

DUST US Gold Miners Bear Index

The Dust chart has similar commentary, except in the opposite direction being a US miners bear index. The chart is even more positive than GDX, closing still some way below 200-Dema. But nevertheless it looks like the next stop is at 26.0 en-route up into the resistance zone.

Silver

The silver 3 year chart illustrates silver dropping down towards new support, having penetrated all the MAs. The chart has a negative bias, and the oscillators are dropping in support of lower silver.
Silver had a brief period of outperforming gold recently, but now resumes its role of underperforming, as registered in the gold / silver ratio. The inference here is that precious metals are likely to drop down further.

The 12 month chart illustrates silver dropping down into the 1st support zone, with every likelihood of dropping down further into the 2nd support zone. The silver price is well-below the MAs already and will not get any additional support.
Both oscillators are dropping in support of lower silver prices, although the Slow Stochastic is down at the bottom of its range which might suggest further price decline hesitancy, for a while.

The 3 month silver chart illustrates the rapid price decline towards the new support level at $14.90 which is also not particularly strong. So, further price declines are probable.

Gold : Silver Ratio

Silver continued to underperform gold during the metals rally and will continue to do so during the retracement down. The rising wedge pattern remains inviolate and indicates yet higher ratios and lower metal prices.

General Equities

The counter-trend rally in the US equity market is finally signalling a potential end, with a breakout in the bear flag. This is one of the first decline triggers (black circle), with the second decline trigger being penetration of two lows during Feb 2019 (red lines).

These triggers will soon provide confirmation of the Dow Jones in decline, as and when the Elliott Wave structure can be determined as 5 wave impulse declines and 3 wave corrective advances. We are nearly there.

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