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Midweek Market 30 Jan 2020

Jan 30th, 2020

Executive summary

US equities have started to decline amidst a degree of non-confirmations amongst major indices, which presents as a potential top still to be confirmed. Numerous indications have been developing for some time now in support of a top, and all the data and supporting impact factors need to unwind further before resolving into higher levels of certainty. This involves the complete gambit including US Treasuries, the dollar, debt and funding options, interest rates, and much more.

The start of equity decline has moved funds into bonds and the benchmark 10 year US Treasury has once again reduced yield levels which need to unfold further before resolving into bond market direction. This impacts massively on the whole question of debt and funding and the actions of central banks and interest rates. The dollar is in long term decline but has extended periods of strength, such as now. The current rally is forecast to end very soon and resume dollar weakness, which is likely to reduce the US$ Index value from 97.8 down towards 95, which in turn will strengthen the Euro and British pound, amongst others.

The gold bear market rally could now have peaked as prices start to decline, with an active sell divergence in place to propel prices lower. Silver is leading the way down as gold continues to outperform with an ever higher gold / silver ratio, which is negative for the whole precious metals complex. 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 has broken up through the MAs in a strong mini-rally and is now poised to resume declining down to support, with assistance from negative divergence to propel the dollar lower.

The daily 12 month chart illustrates multi-breakouts in the correction up, including penetration of a trendline and the bearish dome structure. But the rally top includes 2 bearish top candles which are likely to assist in a lower dollar.

The short term 3 month daily chart provides a closer view of the dollar triple breakout as well as the twin bearish top candles. There is also the suggestion of a reverse sell divergence in the making.

EuroDollar

The Eurodollar, as the near inverse of the dollar index, presents in multi-breakdowns as the Euro weakens against the dollar. In similar fashion, this is now likely to start strengthening anytime soon as the dollar weakens.

US Treasuries

US Treasury 10 year yield is weakening in multi-breakdowns as a consequence of increased money flows from equities to bonds, as US equities indicate a potential top. This chart structure needs to unfold further before resolving into bond market direction. This impacts massively on the whole question of debt and funding and the actions of central banks and interest rates.

Key levels in the chart present as about 1.5% at the lower end and 1.94% at the upper end. Penetration of the upper level will indicate resumption of the bond market collapse, and at the lower end as an extension of the bond bull market.

Gold

The sell divergence in the gold long term chart is impacting in lower gold prices going forward. Virtually all gold commentaries worldwide indicate higher gold prices ahead, whilst Elliott Wave analysis indicates the opposite, with the current rally being a bear market rally only with prices 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, as gold backs down from a late charge.

Importantly, gold Cots data, which is usually correct, remains gold bearish.

South African Rand

Divergence in the US$/ZAR currency pair indicates continued Rand weakness and dollar strength. The earlier contra indications have been eliminated with de-activation of the H&S pattern and the ‘Goodbye kiss’.

HUI / Gold Ratio

Decline in the HUI / Gold ratio is still powered in the post sell divergence mode. Also, the breakdown through the rising channel and bear flag has presented as a potential ‘Goodbye kiss’ which should assist in further declines.

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. So, investors in GDX (US gold miners) are still more confident of higher gold prices.

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

Silver

The silver charts generally are more mundane with no divergence, as the general trend continues down after the recent peak. In fact, silver has actually declined more than gold, reflected in the higher gold / silver ratio. Silver is probably now unlikely to still make a late charge to higher prices. 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 the main driver in generating lower prices, which in fact already breached earlier support levels. The chart structure now suggests yet lower prices to soon test yet lower support levels.

The 12 month chart illustrates the decline gathering momentum as silver drops faster than gold. The next support is close at $17.28.

The ominous Shooting Star candle at the peak did in fact have a strong influence on silver’s decline, as lower prices gather momentum.

As with gold, silver Cots data has a similar structure which remains silver bearish.

The decline in silver miners is powered by the post sell divergence mode. Price has broken down through the rising wedge and the bear flag which now presents as a potential ‘goodbye kiss’ to drop lower into support.

Gold : Silver Ratio

The gold / silver ratio gapped up this week to close substantially higher. This is negative for metal prices as the ratio continues to increase as gold continues to outperform silver. This trend looks likely to continue.

General Equities

The Dow Jones has started to decline amidst a degree of non-confirmations amongst major US indices, which presents as a potential top still to be confirmed. Numerous indications have been developing for some time now in support of a top, and all the data and supporting impact factors need to unwind further before resolving into higher levels of certainty. This involves the complete gambit including US Treasuries, the dollar, debt and funding options, interest rates, and much more.

Technically, this is prompted by the sell divergence after a relentless rise to new highs, after what has been the longest bull market in history since 2009. However, this is nevertheless a major topping pattern which is now threatened by eventual and final collapse.

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. Once the top is confirmed it will herald the start 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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