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Midweek Market 23 Jan 2020

Jan 23rd, 2020

Executive summary
US investor euphoria continues unabated, reaching extreme levels by a number of different criteria. This, despite major threats from many different directions, all as mentioned in this column numerously in the recent past. The rise since the Dec 2018 low has been relentless with ever higher highs and ever higher lows, culminating in a series of new highs. However, this is nevertheless a major topping pattern which is leading towards eventual final collapse, after what has been the longest bull market in history since 2009.

Other financial markets have tended to stall marginally, aided by the US$ which is forecast to weaken but which has steadfastly extended its rally which started at the beginning of 2018. US Treasury yields have stalled in starting to increase as world bond markets are slow to resume the long term collapse which started in mid-2016.

The gold bear market rally seems to have peaked as both precious metals and miners prices start to decline, with a multitude of sell divergences to propel prices lower. The next gold bull market will drive price to many times higher but will be preceded by a sharp decline first. This battle will be fought in a world of approaching monetary and political chaos, and it is critical to identify gold’s true bottom in the period that lies ahead.

US Dollar

The US$ is in long term decline but has been in a rally since 2008, although the decline is now just visible in this long term chart. By a number of different yardsticks the long term dollar decline is likely to take the index into the low 60’s in the next 5 years, although there will no doubt be substantial partial strengthening in search for ‘safe haven’ as equity and bond markets decline.

The dollar is still correcting up after the break from the rising wedge. It remains stuck at the confluence of the 10- and 50-Week moving averages, still well above the 200-Week MA. The negative divergence in the chart structure will assist further declines once the rally terminates.

The daily 12 month chart illustrates the bearish dome structure still in place as the dollar rally reaches increased resistance at the 200-Day moving average (green). The 3-week rally is likely to terminate in this region.

The short term 3 month daily chart provides a closer view of the triple dollar rollover as price reaches increased resistance at the 200-Day moving average (green). This, combined with added resistance from the 50-Day MA (red) is likely to assist resumption of the down trend from here.

EuroDollar

The Eurodollar continues to weaken as it reaches down to start testing the support zone. The bullish inverted dome formation is still in place as the Euro drops down through the 50-Day moving average (red). Any resumption of strength, with forecast dollar weakness, will need to break through resistance of all 3 moving averages above.

US Treasuries

US Treasury 10 year yield is showing small signs of weakness as it edges down through mini-trendlines to further delay completion of the countertrend rally. This delay may extend further before yield resumes it’s advance up towards the breakout level at 1.94%. The higher yields which appear to lie ahead will provide the structure upon which the US Treasury market will be said to be resuming its long term collapse which started in mid-2016. This will in time expose the US Government debt trap and hasten the spiral towards the collapse of the monetary system as we know it.

Gold

The sell divergence in the gold long term chart is likely to promote lower gold prices ahead, as price is still likely to weaken considerably. The next gold bull market will drive price many times higher but will be preceded by a sharp decline first. This battle will be fought in a world of approaching monetary and political chaos.

The 5 year weekly chart highlights the clear sell divergence which should lead to lower gold prices. Price is still well ahead of all the moving averages and the support zones which start at $1450.

The daily 12 month chart illustrates the gold reversal momentum, powered by the sell divergence, as it gathers momentum to the downside with the first support level at $1538.

The 3-month chart illustrates lower prices gathering momentum from the peak Shooting Star reversal candle.

Gold Cots data indicates a maintained build-up of Large Commercial short positions (red declining chart) as against a maintained build-up of Large Speculator long positions (green advancing chart). This is the perfect setup in massive dilation between the two, indicating strong declining potential in gold.

Gold volatility continues to decline in a weak chart structure as a measure of continued investor lack of enthusiasm. This should support continued weaker gold prices ahead.

South African Rand

Divergence in the US$/ZAR currency pair chart indicates continued Rand weakness, but with contra indications from an activated H&S plus ‘Goodbye kiss’. Forecast dollar weakness may win the day, however.

HUI / Gold Ratio

Mild retracement up in the HUI/gold ratio continues, but the sell divergence may terminate this. The ratio continues to hug the 50-Day moving average (red) but could resume declines once it breaks free towards the 200-Day MA.

GDX US miners ETF

The more bullish GDX continues to advance up the potential bear flag, above all the MAs. This supports a continued rising gold price which will need a decisive break lower to turn the GDX chart negative.

This pattern is also reflected by the GDX Juniors, XAU, and inverse Dust (charts not shown).

Silver

The silver charts generally are more mundane with no divergence, the general trend continues down after the recent peak. Silver, probably more so than gold, could still make a late charge and go to a high exceeding the recent high at $19.69. Irrespective, the next silver bull market will drive price to many times higher but will be preceded by a sharp decline first. Like gold, this battle will be fought in a world of approaching monetary and political chaos.

Silver’s non-confirmation with gold peaks is likely to promote lower prices, and the chart structure is also promising lower prices to soon test support (black circle).

The 12 month chart illustrates the reversal gathering momentum, with the first key support level close at $17.62.

The main driver of decline potential is the ominous Shooting Star candle and the lower prices gathering momentum with first support at $17.62.

Sell divergence in silver miners is in place and should propel prices lower. But the small retracement rally is above all the MAs, providing support, and this should increase the degree of difficulty.

As with gold, silver Cots data has the identical structure indicating lower silver prices ahead.

Gold : Silver Ratio

The gold / silver ratio closed higher at 87.32 as the drift up continues to rise slowly, which is negative for metal prices, and vice versa. Gold continues to outperform silver marginally as the ratio creeps up, and this looks likely to continue further.

General Equities

The sell divergence has prompted the Dow to start turning down. The rise since the Dec 2018 low has been relentless with ever higher highs and ever higher lows, culminating in a series of new highs. However, this is nevertheless a major topping pattern which is leading towards eventual final collapse, after what has been the longest bull market in history since 2009.

Elliott Wave analysis of the Dow indicates completion of the various wave counts ending in a top 5 of numerous degrees which presumes the final top or very close to the final top. This top is also to be the start of a serious decline that could extend into most of the next decade.

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