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Market Analysis 28 May 2020

May 28th, 2020 No comments

Executive summary

The bear market continues to unfold with the Dow Jones primary leg 1 down complete and the primary leg 2 up nearly complete, with primary leg 3 down about to start. This will engulf the extreme investor euphoria that is typical of a bear market primary leg 2.

There are tremendous pressures evident in the financial system. The US Fed’s balance sheet recently expanded by an unprecedented $3 trillion, and during the same period the US stock market has added $3 trillion in primary wave 2 up since its low point in March. Animal spirits are driving share prices based on hideous fundamentals.
 
The world is scrambling to answer how the market can stay afloat even while the global economy is in shambles. The central issue is the sharp and persistent divergence between the real economy and the stock market. A bidding war on Wall Street is happening once again, while on Main Street the unemployment rate is 14.7% and that number will be much worse when the next data set is released, considering almost 40 million people have applied for unemployment since the start of this crisis.

The US$ has been in sideways mode as the Dow Jones completes primary leg 2 up, which may lead to further weakness until primary leg 3 down actually resumes the decline phase. The Dow Jones decline phase will increase dollar demand into a strong rally as the equity bear market unfolds further. The benchmark 10 year US Treasury yield continues to consolidate as it builds a fragile support base, which is broadening slowly and could soon develop mild bullish signals.

Precious metals have turned from mild buy signals last week to mild sell signals this week, with US miners leading the metals down with breaks through bear flags in charts that have dangerous ‘Jaws of Death’ formations in place.

US Dollar

The US$ is in long term decline but has been in a rally since 2008 with a recent strong rally since 2018 to a new high which has already exceeded the previous high at the start of 2017. This will corrupt the dynamic with dollar strength into continued equity collapse, as we enter a new phase until a more meaningful loss of confidence in the present international monetary system changes it back to long term dollar weakness.

This applies also to US Treasuries and therefore the US bond market, as interest rates and the dollar are closely linked. The excessive over valuation of the US bond market will lead eventually to the collapse of both the bond market and the dollar.

The dollar is strengthening as the rally from 2018 extends. US equities are about to start the next major leg down and this will increase dollar demand into a strong rally as the equity bear market unfolds further. This will lead towards an inflection point of increasing dollar demand to be met by decreasing confidence in fiat currencies and the eventual collapse of the global monetary system.

The shorter term 12 month chart reveals the dollar again weakening as it extends sideways with a breakdown through the triangle. The dollar is likely to continue weakening marginally before the start of a strong rally, which depends largely on the exact timing of the resumption of US equity declines. The dollar usually strengthens in line with equity collapse, and this is also supported by EuroDollar performance in opposite direction to dollar performance.

The short term 3 month chart illustrates the triangle breakdown in more detail. This is likely to still weaken slightly before a strong rally into equity declines, as the Dow Jones starts the next major leg down in the bear market.

EuroDollar

The Eurodollar, as the virtual opposite of the US dollar index, is in clear weakening mode but with mini-rallies in the tail including a mini-breakout which should strengthen further before declines resume. This to a degree gives credence to dollar strength ahead, as the EuroDollar is behaving technically nearly exactly opposite.

US Treasuries

The benchmark 10 year US Treasury yield continues to consolidate as it builds a fragile support base. The support base is broadening slowly and could soon develop mild bullish signals, as US equities continue to unfold into the 2nd primary wave up. The acid test is US Treasury behaviour once equities resume declines, which will certainly be met with increased US Fed bond purchasing to supposedly arrest declines and stabilise markets.

There is a clear link between US Treasury performance and US equities, in that if equities collapse then US Treasuries increase (lower yield) as investors move currency from equities to bonds and the US Fed ramps up QE. The net effect is an attempt to inflate asset values which increases bond values and extends the bond bull market. In spite of this, real interest rate expectations are for increasing rates as deflation sets in, which will reverse US Treasury yields from lower to higher as the US bond market starts to collapse in line with equities, and dollar value eventually resumes a weakening phase as confidence in currencies finally start collapsing.

Short term US Treasury yields are holding in a narrow range at 0.15%, prior to the start of any equity declines. This 3 month rate is the one that guides the US Fed into rate decisions, and the chart indicates no potential for any rate cut at the moment.

Gold

Long term gold still has an active sell divergence in place which should lead to declines from here, aided now by the absence of some short term buy signals that were there a week ago. The next gold bull market will drive price many times higher, but only after further declines to new lows during a period of deflation. These lows will finally signal an end to the gold bear market as we reach the inflection point between the end of deflation and the start of inflation.

The 5 year weekly chart highlights the sell divergence in more detail, as well as the massive drop in volume as the gold price peaked. This all indicates lower prices ahead, which have not started yet. Market response to technical signals vary from immediate to days, weeks, or even months later.

A consolidation is building at the moment which could respond similarly to the responses after the 2016 and 2018 consolidations. These declined quickly to well below the 200-Day MA (blue), and a similar drop now could witness a gold price decline of $200-$300.

The 12 month chart illustrates the twin breakouts to two rising wedges, as gold drifts sideways in the wake of the bearish sell divergence. The chart has the appearance of a potential price break down with both oscillators drifting down.

Gold is moving sideways in the narrow top channel, bracketing the 10-Day MA (blue). Breaks up or down could occur, but it seems likely that any trigger will have to come from the miners and not the metals themselves.

Brent Crude Oil

Oil has moved up to the top of the consolidation zone, in line with equities still unfolding in the late stage of primary wave 2 up and prior to any hint of resuming declines. Fundamentals in the oil market remain bearish with economic activity at such anaemic levels, and the various implications need to still work through the system before real directional signals can be meaningful.

The gold / oil ratio starts to normalise towards the support zone as it drops down further through the 50-Day MA (red) towards the 200-Day MA (green). The chart still indicates lower gold prices to come.

South African Rand

Twin breakouts from the triangle and rising wedge indicate continued Rand strength. Prospects of dollar weakness are limited and Rand strength can therefore only be temporary.

HUI / Gold Ratio

There is a bear flag breakdown indicating further declines in the ratio. Miners are leading the gold price down and the chart has a threatening ‘Jaws of Death’ appearance which could be dangerous with a potentially severe decline in the next period.

HUI Gold Bugs Index

The HUI itself has a similar chart to the HUIGold ratio with a bear flag breakdown indicating further declines in the miners. Miners are leading the gold price down and the chart also has a threatening ‘Jaws of Death’ appearance which could be dangerous. If (or when) the gap is closed the key level of 185 will be tested, and breaching that level will test the March low at 142.

This situation also applies to all US miners, and GDX, GDXJ, and XAU are all positioned in likewise charts subject to lower penetrations which will trigger further declines to test the March lows.

Dust US Miners Bear Index

There is a breakout in the Dust chart that has been 11 months long in the making. The reducing wedge and the long term buy divergence has broken up (double circle), promising higher Dust prices. A breakout in Dust means lower metals and miners ahead, a US miners bear index which responds in the opposite direction to the miners themselves. It is also geared and is a valuable indicator as well as being a valuable investment vehicle as well.

Silver

Long term silver continues to trend lower, despite the recent strong rally. The chart has a negative bias and the trend continues down in a continued major non-confirmation with gold, despite silver outperforming gold for the last 17 consecutive trading days. This is potentially countertrend and will not last long. As with gold, the next silver bull market will drive price many times higher, but only after further declines to yet lower lows first. These lows will finally signal an end to the silver bear market as we reach the inflection point between the end of deflation and the start of inflation.

The strong silver rally from the sideways consolidation of the last number of weeks has stopped short of the previous high as the rally energy dissipates in a developing bear flag. In not achieving a new high silver continues the non-confirmation with gold. The gold/silver ratio has actually declined to below 100 in the silver rally but is forecast to reverse towards higher levels once the dollar starts to rally.

The silver triangle breakout and continued rally has topped into a consolidation below resistance as rally energy dissipates. Lower silver prices lie ahead and a key support level remains at $14.50.

The triangle breakout has exhausted into a consolidation with the extended peak roughly equal to the height of the base. There may still be higher prices but failing that a key support level remains at $14.50 below which all bullish potential will be lost.

The silver miners chart is similar the HUI index with a bear flag breakdown indicating further declines in the miners. Miners are leading the silver price down (as with gold) and the chart also has a threatening ‘Jaws of Death’ appearance which could be dangerous. If (or when) the gap is closed the key level of 23 will be tested, and breaching that level will test the March low at 16.

Gold : Silver Ratio

The gold / silver ratio closed slightly up with a bullish closing candle being the first sign of reversal in 10 weeks. It is early days, but it could be that the earlier pennant break to the downside has exhausted and the ratio is showing signs of a bottom and potential turnaround. The next week or two is crucial, and if this is indeed a bottom then metals are likely to have topped, and vice versa.

General Equities

The bear market continues to unfold with the Dow Jones primary leg 1 down complete and the primary leg 2 up nearly complete. The primary leg 3 down is about to start, and this will engulf the extreme investor euphoria that is typical of a bear market primary leg 2. The Dow Jones Industrial Average is also sporting a strong sell divergence signal and all the gaps below 27000 have now been closed.

There are tremendous pressures evident in the financial system. The US Fed’s balance sheet recently expanded by an unprecedented $3 trillion, and during the same period the US stock market has added $3 trillion in primary wave 2 up since its low point in March. Animal spirits are driving share prices based on hideous fundamentals.
 
The world is scrambling to answer how the market can stay afloat even while the global economy is in shambles. The central issue is the sharp and persistent divergence between the real economy and the stock market. A bidding war on Wall Street is happening once again, while on Main Street the unemployment rate is 14.7% and that number will be much worse when the next data set is released, considering almost 40 million people have applied for unemployment since the start of this crisis.

This chart reflects the Dow Jones Ind Ave performance from the 2008 Global Financial Crisis, and illustrates very basic Elliott Wave counts indicating where we are in the collapse. Declines since the final top of the market at 5 (circle) have now completed primary waves 1 and 2 and primary wave 3 is about to start. 3rd Waves are the longest and strongest and this wave will likely drop the Dow down from 25000 to the region of 15000.

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Market Analysis 21 May 2020

May 21st, 2020 No comments

Executive summary

The bear market continues to unfold with the Dow Jones primary legs 1 down and 2 up virtually complete, primary leg 3 down is about to start. Fundamentally, world economies have imploded and are contracting at a record rate, debt levels are massive, companies are facing closure, and unemployment statistics are horrific. It is at this time that pundits are heralding the continuation of the bull market while the global monetary system is broken and negative economic intensity gathers momentum. In primary leg 3 down the Dow Jones will likely drop the Dow down from 25000 to the region of 15000.

The US$ has been in sideways mode as the Dow Jones completes primary leg 2 up, which may lead to further weakness until primary leg 3 down actually resumes the decline phase. The Dow Jones decline phase will increase dollar demand into a strong rally as the equity bear market unfolds further. The benchmark 10 year US Treasury yield continues to consolidate as it builds a fragile support base, which is broadening slowly and could soon develop mild bullish signals.

The triangle breakout in gold, which might propel prices to a new high, has a weak follow through which indicates that price may now fail to break higher. Silver has had a strong rally, as has US gold and silver miners, but the charts are now indicating weakness to follow.

US Dollar

The US$ is in long term decline but has been in a rally since 2008 with a recent strong rally since 2018 to a new high which has already exceeded the previous high at the start of 2017. This will corrupt the dynamic with dollar strength into continued equity collapse, as we enter a new phase until a more meaningful loss of confidence in the present international monetary system changes it back to long term dollar weakness.

This applies also to US Treasuries and therefore the US bond market, as interest rates and the dollar are closely linked. The excessive over valuation of the US bond market will lead eventually to the collapse of both the bond market and the dollar.

The dollar is strengthening as the rally from 2018 extends. US equities are about to start the next major leg down and this will increase dollar demand into a strong rally as the equity bear market unfolds further. This will lead towards an inflection point of increasing dollar demand to be met by decreasing confidence in fiat currencies and the eventual collapse of the global monetary system.

The shorter term 12 month chart reveals the dollar again weakening as it extends sideways into the reducing triangle pattern. This presents as a pivotal moment as the triangle pattern moves closer to the apex and potential breakout. Much depends on the exact timing of the resumption of US equity declines, and there may well be further dollar weakness if these equity declines are unduly delayed. This is also reflected equally in the opposite direction in EuroDollar performance.

The short term 3 month chart illustrates the sideways movement within the triangle in more detail, with the dollar weakening slightly at the triangle apex. A bullish breakout is forecast if US equity declines resume soon, and vice versa. But as the Dow Jones starts the next major leg down in the bear market, so too will the dollar turn up in a strong medium term rally.

EuroDollar

The Eurodollar, as the virtual opposite of the US dollar index, is in clear weakening mode but with mini-rallies in the tail. as it continues to trend lower. This to a degree gives credence to dollar strength ahead, as the EuroDollar is behaving technically nearly exactly opposite.

US Treasuries

The benchmark 10 year US Treasury yield continues to consolidate as it builds a fragile support base. The support base is broadening slowly and could soon develop mild bullish signals, as it is inconceivable that the US bond bull market can co-exist alongside a collapsing equity market, despite the vast (and ludicrous) US Fed bond purchasing program to supposedly stabilise financial markets.

There is a clear link between US Treasury performance and US equities, in that if equities collapse then US Treasuries increase (lower yield) as investors move currency from equities to bonds in search of safe haven (and vice versa). Also, as equities collapse so too does the US Fed ramp up QE in attempting to stem losses and keep the financial and monetary system from collapsing. The net effect is an attempt to inflate asset values which increases bond values and extends the bond bull market. In spite of this, real interest rate expectations are for increasing rates as deflation sets in, which will reverse US Treasury yields from lower to higher as the US bond market starts to collapse in line with equities, and dollar value eventually resumes a weakening phase as confidence in currencies finally collapse.

Short term US Treasury yields are holding in a narrow range at 0.12%. The 3 month yield is subject to the same influences as the benchmark 10 year, except that it is more directly responsive to US Fed activity because the bond purchasing program (QE) includes mainly short term Treasuries. The acid test will occur once equities actually resume significant declines in the bear market and the US Fed increases bond purchases massively in response. This 3 month rate is the one that guides the US Fed into rate decisions, and the chart indicates no potential for any rate cut at the moment.

Gold

Long term gold still has an active sell divergence in place which should lead to declines from here, although some short term signals suggest gold may yet go higher first before real declines start. The next gold bull market will drive price many times higher, but only after further declines to new lows first during a period of deflation. These lows will finally signal an end to the gold bear market in a world of approaching currency, monetary and economic collapse.

The 5 year weekly chart highlights the sell divergence in more detail, as well as the massive drop in volume as the gold price peaked. This all indicates lower prices ahead, which have not started yet. Market response to technical signals vary from immediate to days, weeks, or even months later.

A consolidation is building at the moment which could respond similarly to the responses after the 2016 and 2018 consolidations. These declined quickly to well below the 200-Day MA (blue), and a similar drop now could witness a gold price decline of $200-$300.

The 12 month chart illustrates the triangle breakout, in the wake of sell divergence, which could propel gold to a new high. The follow through has been weak though and price may now fail to break higher.

Gold has broken down through the rising wedge in the wake of the sell divergence and up into a triangle breakout. Price is only hovering after the breakout with no additional indication of increasing much from here. Final voiding of the triangle pattern needs gold to decline below $1664.

Brent Crude Oil

Oil has been consolidating in a zone around $30 and has now moved up to close at the top of the zone. This seems to be in line with US equities in the late stage of the countertrend rally, which presupposes oil declines after equities resume declines. The fundamentals in the oil market remain bearish with economic activity at such anaemic levels, and the various implications need to still work through the system before real directional signals can be meaningful.

The gold / oil ratio starts to normalise towards the support zone as it drops down further through the 50-Day MA (red) towards the 200-Day MA (green). The chart still indicates lower gold prices to come.

South African Rand

Breakout from the triangle indicates dollar weakness and Rand strength. This can only be temporary as the dollar is set to rally soon.

HUI / Gold Ratio

The US miners rally since mid-March has exceeded by far the rallies in other components of the precious metals complex. HUI (US miners) is leading gold higher in an expanding triangle pattern which could be dangerous, as it resembles the normally bearish ‘Jaws of Death’ pattern which could plummet strongly in the next period.

HUI Gold Bugs Index

The HUI itself has a similar chart to the HUIGold ratio, and is holding to higher levels in leading the other components in the precious metals complex. The rally has been substantial but in an overall pattern that is extremely bearish. There is a gap lower down below 220 and gaps are usually closed later on.

This situation also applies to all US miners, and GDX, GDXJ, and XAU are all positioned in likewise charts subject to lower penetrations which will trigger further declines to test the March lows.

Dust US Miners Bear Index

The Dust chart is a US miners bear index which responds in the opposite direction to the miners themselves. It is also geared and is a valuable indicator as well as being a valuable investment vehicle as well.

The chart illustrates a strong long term buy divergence plus a reducing wedge both of which look set to break up any time soon. Once this occurs, US miners will decline to lower levels.

Silver

Long term silver continues to trend lower, despite the recent strong rally. The chart has a negative bias and the trend continues down in a continued major non-confirmation with gold, despite silver outperfporming gold for the last 12 consecutive trading days. This is potentially countertrend and will not last long. As with gold, the next silver bull market will drive price many times higher, but only after further declines to yet lower lows first. These lows will finally signal an end to the precious metals bear market in a world of approaching currency, monetary and economic collapse.

Silver has a strong breakout from the sideways consolidation of the last number of weeks which has propelled price up towards resistance. It has also not achieved a new high in continued non-confirmation with gold. The gold/silver ratio has actually declined to below 100 in the silver rally but is forecast to reverse towards higher levels once the dollar starts to rally.

Silver has a strong 9 week rally which ramped up dramatically after the triangle breakout. Price moved up to $18 toward stronger resistance. Lower silver prices lie ahead and a key support level remains at $14.50.

The triangle breakout has propelled Silver to $18 at the culmination of a strong 9 week rally. There may still be higher prices but failing that a key support level remains at $14.50 below which all bullish potential will be lost.

Silver miners advanced 133% in a powerful 10 week rally which ramped up after the breakout in the final week. As with US gold miners, the chart is in a dangerous expanding triangle pattern with severely bearish implications if the silver price declines.

Gold : Silver Ratio

The gold / silver ratio closed down by 11% for the week, as the pennant break to the downside extended further to close below 100 at 97.17 for the first time since mid-March. The overall chart indication still continues to present an upward bias of increasing ratio trend, but this was ruptured this week by the massive silver rally. Silver underperformance will return and this will be continued until the eventual inflection point at the start of the next real precious metals bull market.

General Equities

The bear market continues to unfold with the Dow Jones primary leg 1 down complete and the primary leg 2 up nearly complete. The primary leg 3 down is about to start, and this will engulf the extreme investor euphoria that is typical of a bear market primary leg 2. The Dow Jones Industrial Average is also sporting a strong sell divergence signal.

Fundamentally, world economies have imploded and are contracting at a record rate, debt levels are massive, companies are facing closure, and unemployment statistics are horrific. It is at this time that pundits are heralding the continuation of the bull market while the global monetary system is broken and negative economic intensity gathers momentum.

This chart reflects the Dow Jones Ind Ave performance from the 2008 Global Financial Crisis, and illustrates very basic Elliott Wave counts indicating where we are in the collapse. Declines since the final top of the market at 5 have now completed primary waves 1 and 2 and primary wave 3 is about to start. 3rd Waves are the longest and strongest and this wave will likely drop the Dow down from 25000 to the region of 15000.

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Market Analysis 14 May 2020

May 14th, 2020 No comments

Executive summary

The bear market continues to unfold, as the 2nd major leg down is underway. The Dow Jones Industrial Average is displaying a strong sell divergence signal which will propel prices much lower as negative economic intensity gathers momentum.

The dollar is strengthening again as the rally from 2018 extends, despite a recent 8 week period of lethargy. US equity declines are again increasing dollar demand into a forecast strong rally as the bear market unfolds further. This will lead towards an inflection point of increasing dollar demand to be met by decreasing confidence in fiat currencies and the eventual collapse of the global monetary system.

The benchmark 10 year US Treasury yield remains low in a fragile support area as the result of the vast (and ludicrous) US Fed bond purchasing program to supposedly stabilise financial markets. However, it remains inconceivable that the US bond bull market can co-exist alongside a collapsing equity market. In spite of this, real interest rate expectations are for increasing rates as deflation sets in, which will reverse US Treasury yields from lower to higher as the US bond market starts to collapse in line with equities, and dollar value eventually resumes a weakening phase as confidence in currencies finally collapse.

Lower gold and silver prices lie ahead but could possibly break up to new highs first, before becoming enveloped in the equity collapse which will devour all in its path. Although the technical signals are there, market reaction is proving to be slow probably because of increasing turmoil in the global monetary system as well as elevated fear levels due to covid-19 economic destruction.

The global monetary system is collapsing and the world is moving into a period towards currency collapse which argues strongly in favour of gold and gold-related investments. Therefore, the period ahead needs to be navigated very carefully between preparation and action. Government deficits are huge and increasing rapidly in response to lockdown economies, which will all promote deflation (witness the oil collapse) with inflation thereafter followed by hyperinflation as currencies collapse.

This will present as a matrix evolving towards an inflection point with potential profit in strong currencies before and gold investments after.

US Dollar

The US$ is in long term decline but has been in a rally since 2008 with a recent strong rally since 2018 to a new high which has already exceeded the previous high at the start of 2017. This will corrupt the dynamic with dollar strength into continued equity collapse, as we enter a new phase until a more meaningful loss of confidence in the present international monetary system changes it back to long term dollar weakness.

This applies also to US Treasuries and therefore the US bond market, as interest rates and the dollar are closely linked. The excessive over valuation of the US bond market will lead eventually to the collapse of both the bond market and the dollar.

The dollar is strengthening as the rally from 2018 extends. US equities have started the next major leg down and this is increasing dollar demand into a strong rally as the bear market unfolds further. This will lead towards an inflection point of increasing dollar demand to be met by decreasing confidence in fiat currencies and the eventual collapse of the global monetary system.

The shorter term 12 month chart reveals the dollar strengthening in sideways mode as it moves back above the February 2020 high. This presents as a pivotal moment as the triangle pattern moves closer to the apex and potential breakout. Further validation is provided by competing currencies such as the Euro as it weakens towards a steeper decline.

The short term 3 month chart illustrates the sideways movement in more detail, with the dollar strengthening slightly at the triangle apex. A bullish breakout is forecast as the Dow Jones starts the next major leg down in the bear market.

EuroDollar

The Eurodollar, as the virtual opposite of the US dollar index, is in clear weakening mode as it continues to trend lower. This to a degree gives credence to dollar strength ahead, as the EuroDollar is behaving technically nearly exactly opposite.

US Treasuries

The benchmark 10 year US Treasury yield declines in the fragile support area as US equities start the next major leg down in the bear market. The support base is broadening slowly and could soon develop mild bullish signals, as it is inconceivable that the US bond bull market can co-exist alongside a collapsing equity market, despite the vast (and ludicrous) US Fed bond purchasing program to supposedly stabilise financial markets.

In spite of this, real interest rate expectations are for increasing rates as deflation sets in, which will reverse US Treasury yields from lower to higher as the US bond market starts to collapse in line with equities, and dollar value eventually resumes a weakening phase as confidence in currencies finally collapse.

Short term US Treasury yields are holding in a narrow range at 0.13%. The 3 month yield is subject to the same influences as the benchmark 10 year, except that it is more directly responsive to US Fed activity because the bond purchasing program (QE) includes mainly short term Treasuries. The acid test will occur once equities actually resume significant declines in the bear market and the US Fed increases bond purchases massively in response. This 3 month rate is the one that guides the US Fed into rate decisions, and the chart indicates no potential for any rate cut at the moment.

Gold

Long term gold still has an active sell divergence in place which should lead to declines from here, although some short term signals suggest gold may yet go higher first before real declines start. The next gold bull market will drive price many times higher, but only after further declines to new lows first during a period of deflation. These lows will finally signal an end to the gold bear market in a world of approaching currency, monetary and economic collapse.

The 5 year weekly chart highlights the sell divergence in more detail, as well as the massive drop in volume as the gold price peaked. This all indicates lower prices ahead, which have not started yet. Market response to technical signals vary from immediate to days, weeks, or months later.

The 12 month chart illustrates a sideways consolidation that is forming into a triangle pattern, in the wake of sell divergence and rising wedge break. Lower gold prices lie ahead but the triangle pattern could first break up and propel price to a new high at about $1800. Although the technical signals are there, market reaction is proving to be slow probably because of building turmoil in the global monetary system as well as elevated fear levels due to covid-19 economic destruction.

Gold has broken down through the rising wedge in the wake of the sell divergence, but prices are drifting sideways towards a triangle apex. Gold needs to decline through $1664 to void the triangular pattern which could otherwise propel price to a new high at about $1800.

Brent Crude Oil

Oil is consolidating in a zone around $30 as it reacts to the recent sharp declines. But the fundamentals in the oil market remain bearish with economic activity at such anaemic levels, and the various implications need to still work through the system before real directional signals can be meaningful.

The gold / oil ratio, which equals the number barrels of oil that 1oz of gold will purchase, drops down through the rising channel as it starts to normalise towards the support zone. At these levels it still indicates much lower gold prices to come.

South African Rand

Breakout from the bear flag indicates Rand strength, but a breakout up from the pennant formation indicates Rand weakness. The chart implications are therefore somewhat mixed, probably as the result of a dollar that has meandered sideways for the past 6 weeks. The dollar is forecast to now start strengthening markedly and this will leave the Rand weaker.

HUI / Gold Ratio

The ratio has a breakout through the bear flag which could soon test support. The chart reflects weaker US miners against a less-weak gold price, and the miners could be leading gold lower, as has happened before.

HUI Gold Bugs Index

The HUI itself has a similar chart to the HUIGold ratio, and has broken down from the bear flag in exercising the start of reversal potential to perhaps test support soon. Penetrating 185 still applies and this will trigger further declines to test the March low at 142.5.

This applies to all US miners, and GDX, GDXJ, and XAU are all subject to lower penetrations which will trigger further declines to test the March lows.

Dust US Miners Bear Index

The Dust chart is a US miners bear index which responds in the opposite direction to the miners themselves. It is also geared and is a valuable indicator as well as being a valuable investment vehicle as well.

The chart illustrates a strong long term buy divergence plus a reducing wedge both of which have now broken up, which should lead to higher prices ahead. But, importantly, this amplifies lower metals and miners prices (not higher), being an inverse bear index.

Silver

Long term silver continues to trend lower, despite the recent rally. The chart has a negative bias and the trend continues down in a continued major non-confirmation with gold, as silver leads the price declines. As with gold, the next silver bull market will drive price many times higher, but only after further declines to yet lower lows first. These lows will finally signal an end to the precious metals bear market in a world of approaching currency, monetary and economic collapse.

The 5 year silver chart is in a sideways consolidation which is poised to either move up or down. The most notable behaviour in silver is its major non-confirmation with and underperformance of gold, still with a gold/silver ratio well above 100. This ratio is forecast to reach even higher levels, especially with a strong dollar rally expected in the next period.

This all indicates lower prices ahead, in spite of a current mild rally in the silver price.

The 12 month chart illustrates a sideways consolidation that is forming into a triangle pattern, in the wake of a breakout from the rising channel. Lower silver prices lie ahead but the triangle pattern could first break up and propel price to a new high above $19. A key support level remains at $14.50 and penetrating below this level will void any bullish potential in the triangle, and if will lead to much lower prices to test the March low, as with the miners.

Silver has drifted sideways into a triangle pattern in the wake of the sell divergence, and now has the potential to break up to a new high. But any penetration down through the key level at $14.50 will void the bullish triangle potential.

Silver miners have a breakout through the bear flag and could test support soon. Penetration down through the key level at 23 will propel price significantly to test the March low at $16. This latter seems more likely, given all the impact factors.

Gold : Silver Ratio

The gold / silver ratio closed lower at 109.53, after breaking down from the triangle pattern which promises lower ratios and therefore higher short term metal prices. However, the chart still continues to present an upward bias overall which is negative for medium term metal prices. The continued era of significant silver underperformance seems ensured until the inflection point at the start of the next real precious metals bull market.

General Equities
The bear market continues to unfold, as the 2nd major leg down is now underway.

The Dow Jones Industrial Average has completed the first major corrective leg up and the next (and 2nd) major leg down is underway. At the same time a strong reverse sell divergence signal has become evident, and this will propel prices much lower as negative economic intensity gathers momentum.

This chart reflects the Dow Jones Ind Ave performance from the 2008 Global Financial Crisis, and illustrates very basic Elliott Wave counts indicating where we are in the collapse. Declines since the final top of the market at 5 have now completed the 1-2 correction up in a 5 wave leg down that is next to drop severely in wave 3 down. 3rd Waves are the longest and strongest and this wave 3 is likely to decline towards a level in the region of 15 000.

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Market Analysis 7 May 2020

May 7th, 2020 No comments

Executive summary

The bear market is in its initial stages, and is likely to mature into a decade-long collapse. The Dow Jones Industrial Average has completed the first major leg down and the first major correction up, and the second major leg down is commencing. A strong sell divergence signal has occurred in the chart which will propel prices lower. This bear market will be severe and long-lasting, and global human activity will be massively impacted as negative economic intensity gathers momentum.

Investors are still clamouring to buy gold and gold shares, but the precious metal remains in a bear market, soon to start the next major decline as it becomes enveloped in the equity collapse which will eventually devour all in its path. Similarly, the major countertrend move up in gold from the Dec 2015 low is very close to completion, if not already complete. South African gold shares are in ‘Jaws of death’ patterns with price at the upper diagonal, with potentially dire consequences as the metal starts a major decline. This is more pronounced in silver which continues a major non-confirmation with gold; traditional behaviour at major trend changes.

At the same time, the global monetary system is collapsing and the world is moving into a period towards currency collapse which argues strongly in favour of gold and gold-related investments. Therefore, the period ahead needs to be navigated very carefully between preparation and action. Government deficits are huge and increasing rapidly in response to lockdown economies, which will all promote deflation (witness the oil collapse) with inflation thereafter followed by hyperinflation as currencies collapse.

So, the pathway ahead consists of collapsing assets on the one hand and appreciating assets on the other, such as the US$ which attracts money flows (as the international reserve currency) at times of fear. This will present as a matrix evolving towards an inflection point with potential profit in strong currencies before and gold investments after.

The markets overall are beginning to finally move, albeit tentatively. The Dow Jones is in the early stage of the 2nd major leg down, the dollar has started to resume gains, US Treasury yields are off the bottom in beginning to build a consolidated base for later gains, and gold has started declining slowly.

US Dollar

The US$ is in long term decline but has been in a rally since 2008 with a recent strong rally since 2018 to a new high which has already exceeded the previous high at the start of 2017. This will corrupt the dynamic with dollar strength into continued equity collapse, as we enter a new phase until a more meaningful loss of confidence in the present international monetary system changes it back to long term dollar weakness.

This applies also to US Treasuries and therefore the US bond market, as interest rates and the dollar are closely linked. The excessive over valuation of the US bond market will lead eventually to the collapse of both the bond market and the dollar.

The dollar is trending up as demand increases with equities completing the current upward correction as the bear market readies for the next major leg down.

The shorter term 12 month chart reveals the dollar moving sideways but strengthening in the tail as it moves back above the Feb 2020 high. This presents as a pivotal moment as the dollar starts to strengthen, which is also indicated by other currencies opposite to the dollar such as the Euro.

The short term 3 month chart illustrates the sideways movement in more detail, with the dollar strengthening slightly in the tail. This all coincides exactly with the Dow Jones behaviour, except in the opposite direction. This means it is likely to start a serious rally as the Dow Jones starts the next major leg down in the bear market.

EuroDollar

The Eurodollar, as the virtual opposite of the US dollar index, is in clear weakening mode, as it continues to trend lower. This to a degree gives credence to dollar strength ahead, as the EuroDollar is behaving technically nearly exactly opposite.

US Treasuries

The benchmark 10 year US Treasury yield begins to create a support base as it turns up slightly. It is now set to build on this base as the US bond market drops down from its peak. But the real test is about to occur as US equities start the next major leg down in the bear market and the US Fed ratchets up the already ludicrous amounts of currency pumped into the market in their massive QE initiative, which has the effect of reducing interest rates.

In spite of this, real interest rate expectations are for increasing rates as deflation starts to kick in eventually, before inflation and hyper-inflation starts in the phase that will follow. All that will reverse US Treasury yields from lower to higher as the US bond market starts to collapse in line with equities, and dollar value eventually resumes a weakening phase as confidence in currencies decline.

Short term US Treasury yields are holding in a narrow range at 0.10%. The 3 month yield is subject to the same influences as the benchmark 10 year, except that it is more directly responsive to US Fed activity because the bond purchasing program (QE) includes mainly short term Treasuries. The acid test will occur once equities actually resume significant declines in the bear market and the US Fed increases bond purchases massively in response. This 3 month rate is the one that guides the US Fed into rate decisions, and the chart indicates no rate cut yet.

Gold

Long term gold still has an active sell divergence in place which should lead to declines from here, and prices are beginning to decline although still very slowly. The next gold bull market will drive price many times higher, but only after further declines to new lows first. These lows will finally signal an end to the gold bear market in a world of approaching currency, monetary and economic collapse.

The 5 year weekly chart highlights the sell divergence in more detail, as well as the massive drop in volume as the gold price peaked. This all indicates lower prices ahead, which are already beginning to decline slowly. Market response to technical signals vary from immediate to days, weeks, or months later.

The 12 month chart illustrates a shorter term and additional sell divergence which, together with culmination of the rising wedge and rising channel patterns playing out, is starting to propel gold to lower levels. Although the technical signals are there, market reaction is proving to be slow.
Pic Gold 3m

Gold has broken down through the rising wedge in the wake of the sell divergence, and prices are beginning to roll over, although slowly.

Brent Crude Oil

Oil is consolidating in a zone around $30 as it reacts to the recent sharp declines. But the fundamentals in the oil market remain bearish with economic activity at such anaemic levels, and the various implications need to still work through the system before real directional signals can be meaningful.

The gold / oil ratio, which equals the number barrels of oil that 1oz of gold will purchase, drops down through the rising channel as it starts to normalise towards the support zone. At these levels it still indicates much lower gold prices to come.

South African Rand

Breakout from the bear flag indicates Rand strength, but formation of the pennant indicates Rand weakness. The chart implications are therefore somewhat mixed, probably as the result of a dollar that has meandered sideways for the past 6 weeks. The dollar is forecast to now start strengthening markedly and this will leave the Rand weaker.

HUI / Gold Ratio

The ratio increased to a mild new high which may prove to be false, with forecast lower gold prices ahead. This is a danger signal with euphoric investors still clamouring to buy gold shares in the face of potentially lower gold prices.

HUI Gold Bugs Index

The HUI itself has a similar chart to the HUIGold ratio, but has broken to a higher new high and still includes a gap lower down. Price reversed down off the peak and the chart has reversal potential. Penetrating 185 still applies and this will trigger further declines to test the March low at 142.5.

This applies to all US miners and GDX, GDXJ, and XAU are all subject to lower penetrations which will trigger further declines to test the March lows.

Dust US Miners Bear Index

The Dust chart is a US miners bear index which responds in the opposite direction to the miners themselves. It is also geared and is a valuable indicator as well as being a valuable investment vehicle as well.

The chart illustrates a strong long term buy divergence plus a reducing wedge which should beak up soon, both leading to higher prices ahead. But, importantly, this amplifies lower metals and miners prices (not higher), being an inverse bear index.

Silver

Long term silver continues to trend lower, despite the recent rally. The chart has a negative bias and the trend continues down in a continued major non-confirmation with gold, as silver leads the price declines. As with gold, the next silver bull market will drive price many times higher, but only after further declines to yet lower lows first. These lows will finally signal an end to the precious metals bear market in a world of approaching currency, monetary and economic collapse.

The most notable behaviour in silver is its major non-confirmation with gold which is historically typical at major trend changes. The recent rally has silver underperforming gold and this should lead to lower prices. A pennant pattern has formed and this indicates yet lower prices once the apex breaks, and a key pivotal level remains the previous major low point at $13.60 which has already been breached once.

Silver prices are rolling over after the break through the rising channel and 2 key levels await below represented by the red lines. Penetration of these key levels will lead to much lower prices to test the March low, as with the miners.

The 3-month chart illustrates the silver price rolling over with the potential to penetrate the 2 key levels which will drop price down to test the March low, as with the miners.

Silver miners are poised to break up or down. Breakout to a new high will advance price, but a break down through $22.90 will drop price significantly to test the March low at $16. This latter seems more likely, given all the impact factors.

Gold : Silver Ratio

The gold / silver ratio closed higher at 112.46 in a chart that continues to present an upward bias which is negative for metal prices. The chart bias is positive which promises yet higher ratios, and yet lower metal prices. But the ratio has moved sideways for 6 weeks and should break up soon, as all this indicates a continued era with substantial silver underperformance which remains negative for metal prices.

General Equities
The bear market continues to unfold, but is in the very early stages of development.

The Dow Jones Industrial Average has completed the first major leg down and the first major correction up, and the second major leg down is commencing. At the same time a reverse sell divergence signal has occurred which will propel prices lower. This bear market will be severe and long-lasting, and global human activity will be massively impacted as negative economic intensity gathers momentum.

This chart reflects the Dow Jones Ind Ave performance from the 2008 Global Financial Crisis, and illustrates very basic Elliott Wave counts indicating where we are in the collapse. Declines since the final top of the market at 5 have now completed the 1-2 correction up in a 5 wave leg down that is next to drop severely in wave 3 down. 3rd Waves are the longest and strongest and this wave 3 is likely to decline towards a level in the region of 15 000.

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