Home > Uncategorized > Midweek Market 13 Feb 2020

Midweek Market 13 Feb 2020

Feb 13th, 2020

Executive summary

US equities continue to peak in exhaustion mode as the topping patterns develop numerous triggers indicating eventual collapse. US investment protocols continue to manifest danger signals such as alarmingly low levels of portfolio cash and hopelessly underfunded pension funds which, once the share and bond markets roll over (as they must) will ratchet up levels of danger, fear and anguish in the decline phase. This is aside of all the central bank generated problems in money printing and low or negative interest rate manipulation which provided the liquidity to generate the ’The Everything Bubble’ which, once pricked, will devastate the confidence that is holding everything up at the moment.

The US Treasury countertrend rally completion remains delayed with no immediate likelihood of yield rising beyond the breakout level. The whole question needs to unfold further before resolving into mainstream bond market direction, with increased money flows from equities to bonds whenever US equities indicate a potential top. Despite pronouncements from the US Fed to hold rates steady throughout 2020, it seems very likely that the rate will be cut by June, because of lower yields by then.

The US yield curve inverted fleetingly again this week (based on the 10 year / 3 month) indicating that all is not well in the US economy and that recession is a matter of when and not if. 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 down from 98 towards 95, which in turn will strengthen the Euro and British pound, amongst others.

Short term gold and silver trends display a bearish non-confirmation which is typical at major trend changes, and hence the gold bear market rally could now have peaked as prices start to decline. 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 with a strong rally now correcting back up to resistance. 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’ once equity and bond markets decline.

The 5 year chart indicates a short term rally with multi-breakouts in strong gains which has invalidated the rising wedge break down. However, the dollar remains under the bearish influence of negative divergence stretching back more than 2 years, and this is likely to still propel the dollar lower.

The dollar rally is evident in the 12 month chart, illustrating multi-breakouts as the push towards the previous top continues.

The short term 3 month daily chart provides a closer view of the strong dollar rally as it invalidates the potential bear flag in rising above the previous high of Nov 2019.

EuroDollar

The Eurodollar, as the near inverse of the dollar index, continues to weaken in a series of multi-breakdowns to just below its previous low. This has powerfully penetrated earlier supports to form a double bottom, which may or may not hold depending on the dollar. However, this has activated a H&S pattern which could propel the Euro down towards 1.075, being a drop equal to the height of the head.

US Treasuries

10 Year yield edges up marginally but the chart needs to develop further to provide any kind of confidence in forward yield movement. It needs to penetrate 1.94% on the upside but could as easily drop lower to test support or even penetrate support to a new low. This means a further delay in the US Treasury countertrend completion and any resolution into mainstream bond market direction. For now, key levels in the chart present at about 1.45% 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.

US Yield Curve

The US yield curve inverted fleetingly again this week (based on the 10 year / 3 month) indicating that all is not well in the US economy and that recession is a matter of when and not if. This impacts massively on the whole question of debt and funding and the actions of central banks and interest rates.

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.

It is of course interesting to note that the gold price chart in Euros presents as a bullish proposition with every indication that higher prices lie ahead. This applies equally to all other currencies as well, and it is only the gold price represented in US$ that is different. It therefore begs the question, that if Elliott Wave analysis is correct, and that gold (in US$) is only in a bear market rally with eventual prices below the previous low at $1045, then how will this reflect in the EuroGold chart and in fact any other currency as well.

The answer of course might be a very weak dollar.

The 5 year weekly chart highlights the sell divergence and that price decline momentum is starting despite the current sideways drift. Price is still well ahead of all the moving averages and the 1st support zone which starts at $1450.

The 12 month chart illustrates decline momentum turning sideways which could develop into a pennant flag which is usually a continuation pattern, meaning up.

The 3-month chart illustrates price moving sideways. Key break levels could be at $1551 and $1536 if momentum picks to the downside.

Importantly, gold Cots data continues to indicate lower gold prices with massive dilation between Large Spec longs ((green) usually incorrect) and Large Commercial shorts ((red) usually correct).

South African Rand

Surprisingly, the Rand has corrected to strength against a strong dollar. This is all in a potential bear flag which, if the dollar weakens, will break to the downside for further Rand strength. Dollar movement will dictate here.

HUI / Gold Ratio

The ratio continues to break lower in the wake of divergence, indicating US miner weakness against gold. It could be that the miners will assist in driving the metal price lower, as usually happens. A H&S pattern has activated in the process and technically this could drop the ratio towards 0.1275 level.

GDX US miners ETF

The GDX is less bearish than the HUI / gold ratio. However, the earlier multi-breakdowns below the bear flag are holding as is the ‘Goodbye kiss’. But price is being supported by the 50-day MA (red) which needs to be penetrated if support is to be tested. It would appear investors in US gold miners are now increasingly less 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 general trend continues down after the recent peak as it declines 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 is the main driver in generating lower prices, as the decline gathers momentum. 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.

Lower silver prices continue to gather momentum, as the 50-day MA (red) is penetrated decisively. The next key level to be breached is at $17.27.

The decline in silver miners is poised to gather momentum in the wake of the sell divergence and break from the bear flag and rising wedge. The next support level is close at $29.75.

As with gold, silver Cots data has a similar structure which continues to remain increasingly silver bearish.

Gold : Silver Ratio

The gold / silver ratio closed higher at 89.82 as it continues to edge up, which is negative for metal prices (and vice versa). The general trend continues up as gold continues to outperform silver. This trend looks likely to continue.

General Equities

The Dow Jones racks up another sell divergence on the back of the previous one, as equities continue to peak in exhaustion mode as the topping patterns develop numerous triggers indicating eventual collapse. US investment protocols continue to manifest danger signals such as alarmingly low levels of portfolio cash and hopelessly underfunded pension funds which, once the share and bond markets roll over (as they must) will ratchet up levels of danger, fear and anguish in the decline phase. This is aside of all the central bank generated problems in money printing and low or negative interest rate manipulation which provided the liquidity to generate the ’The Everything Bubble’ which, once pricked, will devastate the confidence that is holding everything up at the moment.

One Elliott Wave view of the Dow indicates completion of the various wave counts ending in a top 5 of numerous degrees which presumes the final top. The top should be confirmed once the Dow drops below 28995, which is only 556 points below yesterday’s close (1.88%). This is a matter of time now, and it will herald the start of a serious decline that could extend into most of the next decade.

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