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Market Analysis 25 June 2020

Jun 25th, 2020 No comments

Executive summary

The bear market continues to unfold as the Dow Jones began primary leg 3 down on 8 Jun 2020 from the end of primary leg 2 up. This was characterised by a rare island reversal to confirm the top, as it also was at the final top of the market in Feb 2020. The strong sell divergence signal is in place and active and this will provide added decline energy to gain momentum.

The long term view of the Dow Jones Ind Ave remains the same. Primary wave 3 is likely to decline from 27 000 to 7 000 in a 5 wave impulsive decline with the first wave taking price down to the region of 15 500.

The US$ is again starting to strengthen into the rally which started in early 2018. After recent weakness it is now switching back into rally mode at the first of 2 inflection points as dollar demand increases with US equities now beginning the next major decline phase. Increasing dollar demand will eventually collapse after the second inflection point, as confidence in fiat currencies collapse into a period of serious inflation followed by hyperinflation thereafter.

The benchmark 10 year US Treasury yield continues to develop a fragile support base which might start to display some mild bullish formations as the building process develops. But US equities are resuming declines in the next major leg down which begins to present as the acid test to evaluate treasury performance. Because in the face of serious equity declines with resultant money flows from equities back into treasuries plus US Fed support, this will all have the effect of reducing yields. However, 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.

Gold has a marginal breakout to just short of $1800 which could prove to be the end of the bear market rally. The recent price surge has been driven by declining volumes, typical of rally termination behaviour. Silver has failed to follow suit. The next real precious metals bull market will only start after further declines to new lows during a period of deflation. These lows will finally signal an end to the bear market as we reach inflection point 2 at the start of currency collapse between the end of deflation and the start of serious inflation, sometime during the first half of 2021.

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 dynamic will continue for now 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 artificially prompted excessive over-valuation of the US bond market will lead eventually to the collapse of both the bond market and the dollar.

The dollar continues to strengthen into the rally which started in early 2018, but with strong weakness in the tail. This is now switching back into rally mode at the first of 2 inflection points as dollar demand increases with US equities now beginning the next major decline phase. Increasing dollar demand will eventually collapse after the second inflection point, as confidence in fiat currencies collapse into a period of serious inflation followed by hyperinflation thereafter.

The 12 month chart reveals the end of dollar weakness in a breakout from the bull flag, completing the temporary decline. A strong dollar rally is likely to start from this region as this is the first inflection point at the resumption of US equity declines into the next major leg down. Corresponding weakness in other currencies will be evident, such as the Euro and the Rand.

The 3 month chart illustrates the bull flag breakout in more detail, plus a breakout in the MACD oscillator at the bottom.

EuroDollar

The Eurodollar has a break down from the bear flag after completing its temporary rally, plus a break down in the MACD oscillator at the bottom. A strong decline is likely from this region in response to imminent dollar strength.

US Treasuries

The benchmark 10 year US Treasury yield continues to develop a fragile support base which might start to display some mild bullish formations as the building process develops. But US equities are resuming declines in the next major leg down which begins to present as the acid test to evaluate treasury performance. Because in the face of serious equity declines with resultant money flows from equities back into treasuries plus US Fed support, this will all have the effect of reducing yields.

However, 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.

Short term US Treasury yields are holding in a narrow range, although declining slightly form 0.17% to 0.15% this week. This indicates limited US Fed interference at the moment, despite the start of equity weakness which nobody believes yet. This is a good indicator of US Fed action once equity declines accelerate.

Gold

Gold is reaching the 2012 high as the long term 10 year chart presents as a massive ‘cup & handle’ formation which has severe bearish implications. Price may still edge up further to reach $1800 which could prove to be the end of the bear market rally. The recent price surge has been driven by declining volumes, typical of rally termination behaviour.


The next real gold bull market will only start 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 inflection point 2 at the start of currency collapse between the end of deflation and the start of serious inflation, sometime during the first half of 2021.

The 5 year weekly chart highlights the marginal new high in a sideways consolidation, as well as the massive drop in volume as the gold price peaked. This all indicates lower prices ahead, but the gold top is not confirmed yet nor has the weaker trend started.

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

Gold continues sideways in a top channel consolidation, including a small breakout to a new high, which presents as a new sell divergence (particularly noticeable in the MACD at the bottom). The sideways consolidation does increasingly resemble a top pattern with the key neckline support level at $1674.

The sideways consolidation in a top channel has a breakout to a new high just short of $1800. This may prove to be the top of the rally but there is still no confirmation of a top. Any successful breakdown will need to penetrate the pattern neckline support level at $1674.

Brent Crude Oil

Oil is starting to consolidate above the breakout, but the chart has a negative bias and US equities are starting to weaken. Fundamentals in the oil market have improved slightly but remain abysmal with economic activity still at anaemic levels, and equity market declines will impact negatively on the oil price as it did before.

The gold / oil ratio has a breakout from the declining channel with the ratio turning up as it approached the 200-Day MA (green). This signals lower oil prices ahead.

South African Rand

The US$ / Rand has a breakout from the flag which is positive the dollar and negative the Rand. This indicates the Rand strength phase has completed and now faces declines against a forecast stronger dollar. This is amplified by a MACD breakout also and the Rand is likely to test the resistance zone next.

HUI / Gold Ratio

The HUI /Gold ratio is in a weakening top pattern in the wake of the bear flag breakout, as US miners lead gold lower. But key breaklines need to be breached before any certainty is possible.

HUI Gold Bugs Index

The HUI itself has a virtually identical chart pattern and we must await any potential certainty. The overall expanding triangle does present as a threatening ‘Jaws of Death’ and further weakness will gather momentum in closing the gap, breaching key support, and finally testing the previous low at 142.


This situation applies also to all US miners, and GDX, GDXJ, and XAU are all positioned in likewise charts subject to testing previous lows after the gold rally terminates.


Dust US Miners Bear Index

The Dust breakout gains are losing momentum in the bottom consolidation, due to the late surge in the gold price. The long term buy divergence is still active and the chart will gather positive momentum again if the gold price falters. Being a US miners bear index it responds in the opposite direction to metals and miners price movement.

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, which is now again starting to outperform silver after more than 3 months. As with gold, there is still no confirmation that the top is in. Silver may yet go marginally higher first, but the next silver bull market will only start after further declines to new lows during a period of deflation. 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 next real silver bull market will only start after further declines to new lows during a period of deflation. These lows will finally signal an end to the silver bear market as we reach inflection point 2 at the start of currency collapse between the end of deflation and the start of serious inflation, sometime during the first half of 2021.

The strong silver rally fails to break to a new high as rally energy dissipates in a developing bear flag. In not achieving a new high silver continues the non-confirmation with gold which is a traditional trend change signal, indicating lower prices ahead. As with gold though, there are still no confirmations that the top is in.

In turning down from a triple top, silver has a breakdown from the rising channel pattern as the consolidation turns into a broadening top pattern. Lack of follow-through energy continues to prevent a new high and continues to perpetuate the non-confirmation with gold with bearish implications. The key support level remains at $14.50, to confirm the top is in and eliminate any further bullish potential.

Silver is in a broadening top pattern with the neckline in the vicinity of the 200-Day MA (green), which has been virtually horizontal for 3 months now. Despite not breaking up to a new high the silver chart does have a positive bias with the potential of a breakout at any time. Any bullish potential will be eliminated with penetration down through the key support level at $14.50.

The silver miners chart is similar to the gold miner charts. It is also in a broadening consolidation in the wake of the bear flag breakdown. The overall expanding triangle does present as a threatening ‘Jaws of Death’ and further weakness will gather momentum in closing the gap, breaching key support, and finally testing the previous low at 16.

Gold : Silver Ratio

The gold / silver ratio closed higher at 100.46 as it gains momentum after the confirming bottom. Gold is now again leading silver to higher ratio levels which is negative for metal prices.

General Equities

The bear market continues to unfold as the Dow Jones begins primary leg 3 down on 8 Jun 2020 from the end of primary leg 2 up. This was characterised by a rare island reversal to confirm the top, as it also was at the final top of the market in Feb 2020. The strong sell divergence signal is in place and active and this will provide added decline energy to gain momentum.
The long term view of the Dow Jones Ind Ave remains the same. Primary wave 3 is likely to decline from 27 000 to 7 000 in a 5 wave impulsive decline with the first wave taking price down to the region of 15 500.

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Market Analysis 18 June 2020

Jun 18th, 2020 No comments

Executive summary

US Fed chairman Jerome Powell testified in yesterday’s Capitol Hill briefing that they would ‘backstop’ everything: Meaning the market is not allowed to collapse. In spite of that, the bear market continues to unfold as the Dow Jones begins primary leg 3 down. The end of primary leg 2 up presented as a rare island reversal as did the top of the market in Feb 2020, both confirming bearish tops. The strong sell divergence signal is in place and active and this will provide added decline energy to gain momentum.

The long term view of the Dow Jones Ind Ave remains the same. Primary wave 3 is likely to decline from 27 000 to 7 000 in a 5 wave impulsive decline with the first wave taking price down to the region of 15 500.

The US$ is now switching back into rally mode as dollar demand increases with US equities now beginning the next major decline phase. We define this as the first of 2 inflection points. Increasing dollar demand will eventually collapse along with all currencies after the second inflection point when confidence in fiat currencies collapses into a period of serious inflation and hyperinflation thereafter.

The benchmark 10 year US Treasury yield continues to build a fragile support base which might start to display some mild bullish formations as the building process develops. But US equities are resuming declines in the next major leg down, and this therefore begins to present as the acid test to evaluate treasury performance in the face of serious equity declines with resultant money flows from equities back into treasuries plus US Fed support, which both have the effect of reducing yields.

Precious metals are moving sideways in top channels and have yet to confirm tops, with potential to still move higher before topping out. But gold charts have sell divergences in place and the Gold/Silver ratio appears to have bottomed which supports lower metal prices ahead. US miners look slightly more bearish and could be leading the metals lower.

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 continues to strengthen into the rally which started in early 2018, but with strong weakness in the tail. This is now switching back into rally mode at the first of 2 inflection points as dollar demand increases with US equities now beginning the next major decline phase. Increasing dollar demand will eventually collapse after the second inflection point, as confidence in fiat currencies collapse into a period of serious inflation and hyperinflation thereafter.

The 12 month chart reveals the end of dollar weakness in a breakout from the bull flag, completing the temporary decline. A strong dollar rally is likely to start from this region as this is the first inflection point at the resumption of US equity declines into the next major leg down. Corresponding weakness in other currencies will be evident, such as the Euro and the Rand.

The 3 month chart illustrates the bull flag breakout in more detail, plus a breakout in the MACD oscillator at the bottom.

EuroDollar

The Eurodollar has a break down from the bear flag after completing its temporary rally, plus a break down in the MACD oscillator at the bottom. A strong decline is likely from this region in response to imminent dollar strength.

US Treasuries

The benchmark 10 year US Treasury yield strengthens slightly as it continues to build a fragile support base. This support base might start to display some mild bullish formations as the building process develops, but US equities are resuming declines in the next major leg down. This therefore begins to present as the acid test to evaluate treasury performance in the face of serious equity declines with resultant money flows from equities back into treasuries plus US Fed support, which both have the effect of reducing yields.

However, 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.

Short term US Treasury yields are holding in a narrow range at 0.17%, which indicates limited US Fed interference at the moment, despite the current equity weakness. This is a good indicator of US Fed action once equity declines accelerate.

Gold

Long term gold still has an active sell divergence in place which should lead to declines from here, although there is still no confirmation that the top is in. Gold may yet go marginally higher first, but the next gold bull market will only start 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 inflection point 2 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, but the gold top is not confirmed yet nor has the weaker trend started.

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

Gold continues sideways in a top channel, in the wake of sell divergence and a breakout from the rising wedge. The sideways consolidation does increasingly resemble a top pattern with the key neckline level at $1674.

The sideways move in the top channel appears to be supported by the 50-Day MA (red). First level break lines are supplied by the reducing triangle (black lines) and final break lines by resistance and support. The key neckline support is at $1674, and any break below this level will trigger further declines.

Brent Crude Oil

Oil is starting to consolidate above the breakout, but the equity market is starting to weaken and this will impact negatively on the oil price. Fundamentals in the oil market have improved slightly but remain abysmal with economic activity still at anaemic levels.

The gold / oil ratio has a breakout from the declining channel with the ratio turning up as it approached the 200-Day MA (green). This signals lower oil prices ahead.

South African Rand

The US$Rand has a breakout from the flag which is positive the dollar and negative the Rand. This indicates the Rand strength phase has completed and now faces declines against a forecast stronger dollar. This is amplified by a MACD breakout also and the Rand is likely to test the resistance zone next.

HUI / Gold Ratio

The HUI /Gold ratio is in a broadening top pattern in the wake of the bear flag breakout. This presupposes US miners are leading gold lower, but key breaklines need to be breached before any certainty is possible.

HUI Gold Bugs Index

The HUI itself has a virtually identical chart pattern and we must await any potential certainty. The overall expanding triangle does present as a threatening ‘Jaws of Death’ and further weakness will gather momentum in closing the gap, breaching key support, and finally testing the previous low at 142.


This situation applies also to all US miners, and GDX, GDXJ, and XAU are all positioned in likewise charts subject to testing previous lows.


Dust US Miners Bear Index

The Dust breakout is in the very early stage of slowly gaining momentum in a bullish consolidation, with a key trigger level at $35. The long term buy divergence is active and will provide positive energy to increase price in the next period. Being a US miners bear index it promises lower metals and miners prices ahead as it responds in the opposite direction to the miners themselves.

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, which is now again starting to outperform silver after more than 3 months. As with gold, there is still no confirmation that the top is in. Silver may yet go marginally higher first, but the next silver bull market will only start after further declines to new lows during a period of deflation. 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 fails to break to a new high as rally energy dissipates in a developing bear flag. In not achieving a new high silver continues the non-confirmation with gold which is a traditional trend change signal, indicating lower prices ahead. As with gold though, there are still no confirmations that the top is in.

In turning down from a triple top, silver has a breakout from the rising channel pattern as the consolidation turns into a recognisable H&S formation. Lack of follow-through energy continues to prevent a new high and continues to perpetuate the non-confirmation with gold with bearish connotations. The key support level remains at $14.50.

Silver has a break down from the rising channel as it develops a topping pattern into a H&S formation, above the support of the 200-Day MA (green). Despite not breaking up to a new high silver does still have a positive short term chart, and any weakness will need to decline through $14.50 to reverse the up trend to a down trend and eliminate further bullish potential.

The silver miners chart is similar to the gold miners charts. It is also in a broadening consolidation in the wake of the bear flag breakdown. The overall expanding triangle does present as a threatening ‘Jaws of Death’ and further weakness will gather momentum in closing the gap, breaching key support, and finally testing the previous low at 16.

Gold : Silver Ratio

The gold / silver ratio closed higher at 97.64 as it gains momentum after the confirming bottom. Gold is now again starting to lead silver to higher ratio levels which is negative for metal prices.

General Equities

The bear market continues to unfold as the Dow Jones begins primary leg 3 down. The end of primary leg 2 up presented as a rare island reversal as did the top of the market in Feb 2020, both confirming bearish tops. The strong sell divergence signal is in place and active and this will provide added decline energy to gain momentum.

The long term view of the Dow Jones Ind Ave remains the same. Primary wave 3 is likely to decline from 27 000 to 7 000 in a 5 wave impulsive decline with the first wave taking price down to the region of 15 500.

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Market Analysis 11 June 2020

Jun 11th, 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 probably also complete with today’s declines. The earlier push to higher prices was driven by extreme euphoria as indicated by various sentiment indicators as well as numerous US media reports of an ‘insane’ scramble by everyone to get invested, or lose out: Typical of the end of a primary wave 2 in a bear market. This can only end badly.

The long term view of the Dow Jones Ind Ave remains the same. Primary wave 3 is likely to decline from 27 000 to 7 000 in a 5 wave impulsive decline with the first wave taking price down to the region of 15 500.

The US$ has been weakening in line with US equities making gains in completing the corrective wave up. Resumption of equity declines will see the dollar into a strong rally as demand ratchets up. Similarly, other currencies will be affected inversely, opposite to the dollar. The benchmark 10 year US Treasury yield weakens slightly as it continues to build a fragile support base. This is due to US equity weakness with resultant money flows back into treasuries and presumably some ‘easing’ from the US Fed. The acid test remains treasury performance in the face of serious equity declines plus increased US Fed ‘meddling’ which both have the effect of reducing yields.

Precious metals and miners are moving sideways in top channels which could break either way. Gold charts have sell divergences in place and the Gold/Silver ratio appears to have bottomed which supports lower metal prices ahead. US miners have bear flag breakdowns which have not activated yet. So on balance, indications are more bearish than bullish at this stage.

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 continues to strengthen into the rally which started in early 2018, but with strong weakness in the tail. This will switch back into rally mode at the first of 2 inflection points as dollar demand increases after the start of US equity declines into the next major leg down. Increasing dollar demand will be met by decreasing confidence in fiat currencies after the second inflection point at the end of the coming deflationary period and the onset of serious inflation.

The 12 month chart reveals dollar weakness after the triangle break which is now near to completion. A strong dollar rally is likely to start from this region at the first inflection after the start of US equity declines into the next major leg down. Corresponding weakness in other currencies will be evident, such as the Euro and the Rand.

The 3 month chart illustrates the triangle breakdown in more detail, and the dollar decline which has run its course. A strong rally and bear flag breakout will start from this region which will reciprocally respond to equity declines as the Dow Jones starts the next major leg down in the bear market.

EuroDollar

The Eurodollar breakout nears completion and should start declining from this region in response to imminent dollar strength. The visual trigger will be a bear flag breakdown.

US Treasuries

The benchmark 10 year US Treasury yield weakens slightly as it continues to build a fragile support base. This is due to US equity weakness with resultant money flows back into treasuries and presumably some ‘easing’ from the US Fed. The acid test remains treasury performance in the face of serious equity declines plus increased US Fed ‘meddling’ which both have the effect of reducing yields.

However, 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 0.17%, which indicates limited US Fed interference despite the current equity weakness. This is a good indicator of US Fed action once equity declines accelerate.

Gold

Long term gold still has an active sell divergence in place which should lead to declines from here, although there is still no confirmation that the top is in. Gold may yet go marginally higher first, but the next gold bull market will only start 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 after breakdowns to well below the 200-Day MA (blue), and a similar drop now could witness a gold price decline of $200-$300.

Gold continues sideways in a top channel, in the wake of sell divergence and a breakout from the rising wedge (black circle). The oscillators are neutral but the closing candle is bearish (red circle).

The sideways move in the top channel appears to be supported by the 50-Day MA (red), and the bearish closing candle (red circle) is prominent.

Brent Crude Oil

Oil is starting to consolidate above the breakout, but equities are weakening and both oscillators are at the top of their range. Fundamentals in the oil market have improved slightly but remain abysmal with economic activity still at anaemic levels.

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

South African Rand

The Rand breakout is close to completion and we could have a bear flag breakout any time soon. Rand strength is temporary with the dollar also set to rally soon.

HUI / Gold Ratio

The HUI /Gold ratio is in a broadening consolidation in the wake of the bear flag breakdown, although the pattern resembles a top formation. There is strength in the tail and price has risen above the key trendline to test resistance.

HUI Gold Bugs Index

The HUI itself has a similar chart to the HUI / Gold ratio and is also in a broadening consolidation in the wake of the bear flag breakdown. The pattern also resembles a top formation. There is strength in the tail which is testing resistance.


This situation also applies to all US miners, and GDX, GDXJ, and XAU are all positioned in likewise charts subject to testing resistance.


Dust US Miners Bear Index

The Dust breakout is in the very early stage although losing some momentum in a sideways consolidation. The long term buy divergence is active and will provide positive energy to increase price in the next period. Being a US miners bear index it promises lower metals and miners prices ahead as it responds in the opposite direction to the miners themselves.

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, which is now again starting to outperform silver after 3 months. As with gold, there is still no confirmation that the top is in. Silver may yet go marginally higher first, but the next silver bull market will only start after further declines to new lows during a period of deflation. 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 fails to break to a new high as rally energy dissipates in a developing bear flag. In not achieving a new high silver continues the non-confirmation with gold which is a traditional trend change signal, indicating lower prices ahead. As with gold though, there are still no confirmations that the top is in.

Silver turns down from a triple top after rallying from the triangle breakout. There has been insufficient energy to break to a new high. There is still no confirmation of a top although it appears that lower silver prices lie ahead, with a key support level at $14.50.

Silver continues in the rising channel but appears to be developing a topping pattern complete with bearish closing candle (circle). It needs to decline first below $17.20 and finally $14.50 to reverse the up trend to a down trend, and eliminate further bullish potential.

The silver miners chart is similar to the gold miners charts. It is also in a broadening consolidation in the wake of the bear flag breakdown. The pattern also resembles a top formation, and there is strength in the tail which is testing resistance.

Gold : Silver Ratio

The gold / silver ratio closed higher at 96.69 and has a breakout from the reducing wedge in forming a new bottom, after some 3 months since the high in mid-March. Gold is now again leading silver to higher ratio levels which is negative for metal prices.

General Equities

The bear market continues to unfold with the Dow Jones primary leg 1 down complete and the primary leg 2 up probably also complete with today’s declines. The earlier push to higher prices was driven by extreme euphoria as indicated by various sentiment indicators as well as numerous US media reports of an ‘insane’ scramble by everyone to get invested, or lose out: Typical of the end of a primary wave 2 in a bear market. This can only end badly.
The Dow Jones Industrial Average is also sporting a strong sell divergence signal with the index price now declining as these words are written. Confirmation of the end of primary wave 2 up and the start of primary wave 3 down will be achieved with penetration down through level 25 743 (penultimate high in wave 2).
The long term view of the Dow Jones Ind Ave remains the same. Primary wave 3 is likely to decline from 27 000 to 7 000 in a 5 wave impulsive decline with the first wave taking price down to the region of 15 500.

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Market Analysis 4 June 2020

Jun 4th, 2020 No comments

Executive summary

Animal spirits continue to drive share prices based on hideous fundamentals, and any further increases will remain short-lived. The world is scrambling to answer how the market can stay afloat even while the global economy is in shambles.

The bear market continues to unfold with the next major decline to start very soon. The long term view from the 2008 Global Financial Crisis remains the same in terms of where we are in the collapse, and where we are going. Declines since the final top of the market have now completed the first primary waves down and up, with the next primary wave down about to start. Third waves are the longest and strongest and this wave will likely drop the Dow down from 26000 to the region of 7000. That drop will be a 5 wave impulsive decline with the first wave taking price down to the region of 15 500 which will engulf and eliminate all the extreme investor euphoria of the moment.

The US$ has been weakening with equities making gains in completing the corrective wave up. Resumption of equity declines will see the dollar into a strong rally as demand ratchets up. Similarly, other currencies will be affected inversely, opposite to the dollar. 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, but the acid test will be once equities decline.

Precious metals are moving sideways whilst miners are leading the metals in starting to decline. Miners are indicating 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, but with weakness in the tail which is more obvious in the short term charts. 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 12 month chart reveals dollar weakness after the triangle break which is now near to completion. A strong dollar rally is likely to start from this region and extend to new highs above the March peak. Much depends on the exact timing of the resumption of equity declines because this will increase dollar demand in the next period. Corresponding weakness in other currencies will be evident, such as the Euro and the Rand.

The 3 month chart illustrates the triangle breakdown in more detail, and the dollar decline which has probably run its course. A strong rally will start from this region which will reciprocally respond to equity declines as the Dow Jones starts the next major leg down in the bear market.

EuroDollar

The Eurodollar breakout nears completion and should start declining from this region in response to imminent dollar strength.

US Treasuries

The benchmark 10 year US Treasury yield continues to consolidate as it builds a fragile support base with mild strength in the tail. Any further bullish signals will be put to the acid test once equities resume serious declines, which will certainly be met with increased US Fed bond purchasing to supposedly arrest declines and stabilise markets. Such Fed ‘meddling’ has the effect of reducing rates and Treasury yields.

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 0.16%, 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 recently. 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 after breakdowns to well below the 200-Day MA (blue), and a similar drop now could witness a gold price decline of $200-$300.

Gold weakens in the sideways top channel in the wake of the bearish sell divergence which still lacks energy either way. The chart appearance is of a potential price break down, but there is still no confirmation of a break either way.

In moving sideways in the top channel Gold has weakened to support at the 50-Day MA (red). There is a confluence of rising trendlines and the 50-Day MA in the circle, and this needs to be penetrated before any further weakness.

Brent Crude Oil

Oil has a breakout above the consolidation zone, in line with equity gains in the late stage of primary wave 2 up and prior to any hint of resuming declines. Fundamentals in the oil market remain abysmal with economic activity at 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 towards the 200-Day MA (green). The chart still indicates lower gold prices to come.

South African Rand

The Rand breakout is close to completion with gains equivalent to the height of the triangle. Rand strength is temporary with the dollar set for a strong rally soon.

HUI / Gold Ratio

The HUI /Gold ratio bear flag breakdown gathers momentum as price declines below a key trendline towards the support zone. Miners are leading the gold price down and the chart has a threatening ‘Jaws of Death’ appearance which could be dangerous with potentially severe declines in the next period.

HUI Gold Bugs Index

The HUI itself has a similar chart to the HUI / Gold 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

The Dust breakout is in the very early stage and is starting to gain momentum, in the wake of long term buy divergence and noticeable volume increases. Being a US miners bear index and valuable indicator as well, this means lower metals and miners prices ahead as it responds in the opposite direction to the miners themselves.

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, on average, for the last 22 trading days. This is potentially countertrend and will not last much longer. 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 fails to break to a new high as rally energy dissipates in a developing bear flag. In not achieving a new high silver continues the non-confirmation with gold which is a traditional trend change signal, indicating lower prices ahead. As with gold though, there are still no confirmations that the top is in.

Silver turns down from a triple top after rallying from the triangle breakout. There has been insufficient energy to break to a new high. There is still no confirmation of a top although it appears that lower silver prices lie ahead, with a key support level at $14.50.

Silver repeats the small topping process of last week, which could still go higher. It needs to decline below $14.50 to confirm reversal of the up trend and eliminate further bullish potential.

Silver miners breakdown from the bear flag last week was threatened with invalidation this week. But the price increase failed to penetrate and turned down again this week to validate the break. Therefore the ‘Jaws of Death’ still threatens and 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 lower at 94.93 although the pennant break appears exhausted. Gold leads silver lower this week again but signs of a bottom and turnaround in the ratio are evident in the circle. Lower precious metal prices ahead would result in the ratio increasing back up above 100 and that would confirm resumption of lower metal prices, or 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 with the index price now reaching strong resistance at the 200-Day moving average (green).

Animal spirits continue to drive share prices based on hideous fundamentals, and any further increases will remain short-lived. The world is scrambling to answer how the market can stay afloat even while the global economy is in shambles.

The long term view of the Dow Jones Ind Ave remains the same. A very basic Elliott Wave count from the 2008 Global Financial Crisis illustrates where we are in the collapse, and where we are going. 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 26000 to the region of 7000. That drop will be a 5 wave impulsive decline with the first wave taking price down to the region of 15 500.

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