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Market Analysis 23 Jul 2020

Jul 23rd, 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. Sell signals are in place but movement is sluggish however, and the Dow Jones continues to advance sideways with primary wave 3 down still in the process of starting with no decline momentum yet. Also, this has the knock-on effect of retarding movement in values of other elements of the market, such as the dollar, gold, US Treasuries, interest rates, commodities, and much else.

The long term view of the Dow Jones 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$ continues the short term advance started in Jan 2018 although with current weakness due to the extended duration in US equities actually starting primary wave 3 down. The dollar will strengthen as equities start to decline at inflection point 2, although dollar demand will eventually collapse after confidence is lost in fiat currencies at inflection point 3.

Climactic moves are occurring in the US$, Euro, gold, and silver, each of which is fast approaching significant reversals.

Gold has penetrated the 2012 high in breaching the double top to a new 9 year high. The question is whether it now continues to new all-time highs or whether this is an exhaustion spike that capitulates to the strong sell divergence. The 5 year rally is certainly due a major correction and this question will only be answered in due course by the strength of the two major confronting forces impacting the gold market. Will US (and therefore global) equities collapse and suck the gold market down as well or will the warped global monetary system (and impending currency collapse) blast the gold market much higher. This applies equally to silver.

Price has now probably topped, which is likely to move into protracted declines perhaps lasting years. 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 3 at the start of currency collapse between the end of deflation and the start of serious inflation, probably around mid-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 once US equities resume declines into primary wave 3 down, 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 at present, due to the extended delay in US equities actually building decline momentum at the start of primary wave 3 down. This has been identified as inflection point 2, which has already been reached, but is transforming in ‘slow-motion’ into equity decline and US Dollar strength. Increased dollar demand from this point will eventually collapse after inflection point 3, as confidence in fiat currencies collapse into a period of serious inflation followed by hyperinflation thereafter.

The 12 month chart illustrates the dollar breakdown through support at $95.70 towards the earlier Mar 2020 low. This creates a double bottom as price drops down into the bottom region of a reducing wedge (with bullish implications). A key resistance breakout level remains at $97.80.

The 3 month chart illustrates the dollar breakdown to a new low at $94.92 in the reducing wedge, and the breakout level at $97.80.

EuroDollar

The Eurodollar chart is similar to the dollar index chart, except in the opposite direction, and sluggish US equity declines have the reciprocating effect of boosting Euro values as they advance in the rising wedge at the end of a 4 month rally. A strong decline is eventually likely from this region in response to corresponding eventual dollar strength, and a key support level is at 1.1165.

The long term EuroDollar 10 year chart illustrates long term Euro weakness, with the current rally reaching a region of strong resistance (black circle).

US Treasuries

The benchmark 10 year US Treasury yield continues to weaken in a fragile support base. It continues to nudge down into earlier support prompted by the energy in the sell divergence. US Treasuries are therefore in a sideways consolidation, still at peak capital values indicated by the low yield at 0.60% (virtually zero). Treasuries will be subject to the acid test once US equities actually resume serious declines in the next major leg down, because of resultant money flows from equities back into treasuries plus US Fed interventions, which 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 at inflection point 3 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, pending US equity behaviour. At this stage it indicates limited US Fed interference, but as equity declines gather momentum so too should 3 month yields decline. It is possible the Fed will nevertheless not manipulate yield below zero.

Gold

Gold has penetrated the 2012 high in breaching the double top to a new 9 year high. The question is whether it now continues to new all-time highs or whether this is an exhaustion spike that capitulates to the strong sell divergence. The 5 year rally is certainly due a major correction and this question will only be answered in due course by the strength of the two major confronting forces impacting the gold market. Will US (and therefore global) equities collapse and suck the gold market down as well or will the warped global monetary system (and impending currency collapse) blast the gold market much higher.

Price has now probably topped at the end of a 5 year bear market rally, which is likely to move into protracted declines perhaps lasting years. 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 3 at the start of currency collapse between the end of deflation and the start of serious inflation, probably around mid-2021.

Gold has a breakout to a new high, whilst entrenching the incumbent sell divergence. The behaviour of the gold price is also linked to general equity behaviour, in that it will probably stay buoyant until equities actually resume serious declines in primary wave 3 down. This will lead to deflation which will envelop gold into declines. The gold cycle is probably now due to start weakening, due to the virtually uninterrupted advance from Oct 2018 as well as sharp volume declines during 2020. Confirmation of a top will have to include penetration of the key support level at $1674.

Gold has a breakout to a new high with still no indication yet of a potential top. The metal is likely to remain buoyant until US equities and the dollar trigger significant reversal behaviour. A gold reversal will only start after penetration of key support levels at $1790 (initial) and $1674 (final).

Gold has a breakout to a new high and only after breeching support levels will anything change.

Brent Crude Oil

Oil advances marginally in spite of the sell divergence and nothing is likely to change this other than serious resumption of equity declines which will push oil much lower. The oil price has been in a bear market since 2008 and prospects ahead remain more bearish than bullish. The triangle patterns should break lower from here.

South African Rand

The US$ / Rand price rests on the neckline of an inverse potential cup and handle which once activated is weak the dollar and strong the Rand. Key levels are $16.33 (strong Rand) and $17.53 (weak Rand). The Rand has been strengthening less than the dollar has been weakening, and all depends on US equity and US dollar behaviour.

HUI / Gold Ratio

The HUI /Gold ratio has a breakout to a new high, indicating greater US miner strength against a stronger gold price. This is in spite of the sell divergence in the apex of bearish reducing wedge and expanding triangle patterns. These patterns indicate reversals soon.

HUI Gold Bugs Index

The HUI itself has a virtually identical chart pattern, except more positive. US miners’ gains have accelerated through multi-breakouts to a new high. But, this is in spite of the sell divergence in the apex of bearish reducing wedge and expanding triangle patterns that should induce reversals soon.


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 chart remains extremely subdued in light of the metals and miners breakouts to new highs. But, it presents as a wonderful investment opportunity with virtually no risk with price virtually at zero. Activation of the divergence will also be a breakout of the reducing wedge, and the whole configuration suggests a top in US miners is very close. Being a US miners bear index it responds in geared opposition to metals and miners movement.

Silver

The silver rally has been strong and quick with price doubling in 3 months. It has powered through earlier resistance and key levels and could still go higher, but is close to a major reversal. Despite the exceptional performance, it is nowhere near eclipsing the highs of 2012 as gold has done. This non-conformance against gold therefore continues and is a major harbinger of a trend change. It goes a long way in answering, negatively, the question posed in the gold section as to whether price continues to new all-time highs or whether this is an exhaustion spike that capitulates to the downside. The silver rally is also due a major correction and is also subject to the same two major confronting forces impacting the gold market. Will US (and therefore global) equities collapse and suck silver down as well or will the warped global monetary system (and impending currency collapse) blast silver much higher.

As with gold, there is still no confirmation that the top is in, although it has probably now topped out. 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 inflection point 3 at the start of currency collapse between the end of deflation and the start of serious inflation, probably around mid-2021.

Silver has finally found the energy to breakout to a new high. As with gold, silver is also linked to general equity behaviour, in that it will probably stay buoyant until equities actually resume serious declines in primary wave 3 down. This will lead to deflation which will envelop silver into declines, even more so because silver also has an industrial demand market. Silver is probably now due a correction after such a rapid advance, and will be held accountable to the rigours of a bear flag formation. But there are still no indications of a top.

A strong breakout to a new high but close to a reversal.

A strong breakout to a new high but close to a reversal. A key breakline is at $17.00 in the near exact position of the 200-Day MA (green), and penetration of this level will confirm silver’s top and eliminate any further upside potential.

The silver miners chart is similar to the gold miner charts in breaking up to a new high. But it is also close to a major reversal with price at the apex of the bearish rising wedge and expanding triangle.

Gold : Silver Ratio

The gold / silver ratio plummets to a close at 80.59, a new 11 month low as metals spike up. Further declines indicate yet higher metal prices, and vice versa

General Equities

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. Movement is sluggish however, and the Dow Jones continues to advance sideways with primary wave 3 down still in the process of starting with no decline momentum yet
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 16 Jul 2020

Jul 16th, 2020 No comments

Executive summary

The bear market continues to unfold. Using the Dow Jones Industrial Average as a proxy for US equities, you can see that primary wave 1 down has completed and primary wave 3 down is starting. Primary wave 2 up has been a long and slow process, as are all wave 2s in a bear market. The reason for this is the nature of second wave sentiment with the speculative intensity of investors building a powerful force of euphoria in the belief that the bull market is alive and well and that you need to commit everything for fear of missing out. Consequently, second waves in bear markets are notoriously ‘deep’ and extended, with conditions often seeming as good if not better than they were at the bull market peak itself.

Consider the US CBOE Put / Call ratio which is an indicator of investor sentiment: The lower the ratio the higher the euphoria.

The ratio closed yesterday at 0.38. This is low and was last this low in Jan 2011, 9 years ago. Note also that the euphoric sentiment now is higher than at the bull market peak in Feb 2020 with the ratio at 1.00. Once primary wave 3 down begins the entire sentiment characteristic will swivel and eventually reach extremes in the opposite direction.

Also, the sluggish behaviour of the Dow in reaching the end of primary wave 2 up has the knock-on effect of retarding movement in values of other elements of the market, such as the dollar, gold, US Treasuries, commodities, and much else. The long term view of the Dow, and indeed global equities, remains the same however, and 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 15 000.

The US$ continues the short term advance started in Jan 2018 although with current weakness due to the extended duration of primary wave 2 up in the Dow Jones. The dollar will strengthen as equities start to decline at inflection point 2, although dollar demand will eventually collapse after confidence is lost in fiat currencies at inflection point 3.

Gold has reached the 2012 high which presents as a massive double top with bearish implications, once activated. Price has now probably topped at the end of a 5 year bear market rally, which is likely to move into protracted declines perhaps lasting years. The next real gold bull market will only start after further declines once we reach inflection point 3 at the start of currency collapse between the end of deflation and the start of serious inflation, probably towards mid-2021. There are a number of sell divergences in the charts and the next phase will probably see lower prices, although there is still no confirmed top in place.

Silver outperformed gold in the last 4 months during which the gold / Silver ratio declined by 30% in celebration of a stellar precious metals rally. But silver has not achieved new highs, unlike gold, in a major non-confirmation which in itself indicates a major trend change is about to occur.

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 at present, due to the extended completion in the Dow of primary wave 2 up. The start of primary wave 3 down in the Dow is inflection point 2 at which time the dollar will switch back into rally mode with increased demand as US equities begin the next major decline phase. Increasing dollar demand will eventually collapse after the third inflection point, as confidence in fiat currencies collapse into a period of serious inflation followed by hyperinflation thereafter.

The 12 month chart illustrates the dollar breakout invalidating back towards the previous low, although holding above support. Key levels are at $97.80 resistance and $95.70 support.

The 3 month chart illustrates dollar positioning between key support and resistance levels in more detail.

EuroDollar

The Eurodollar chart is similar to the dollar index chart, except in the opposite direction, and sluggish US equity declines could similarly cause EuroDollar strength before the ultimate weakness prompted by penetration below the neckline at 1.1165.tom. The EuroDollar has a mild breakout whereas the dollar itself has no breakdown. Nevertheless a strong decline is eventually likely from this region in response to corresponding eventual dollar strength.

US Treasuries

The benchmark 10 year US Treasury yield continues to weaken in a fragile support base. It continues to nudge down to test support prompted by the energy in the sell divergence. US Treasuries are therefore in a sideways consolidation which will be subject to the acid test once US equities actually resume declines in the next major leg down. Because in the face of serious equity declines with resultant money flows from equities back into treasuries plus US Fed interventions, 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 at inflection point 3 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, pending US equity behaviour. At this stage it indicates limited US Fed interference, but as equity declines gather momentum so too should 3 month yields decline. It is possible the Fed will nevertheless not manipulate yield below zero.

Gold

Gold has reached the 2012 high as the long term 10 year chart presents as twin peaks in a massive double top which has severe bearish implications, once activated. Price has now probably topped at the end of a 5 year bear market rally, which is likely to move into protracted declines perhaps lasting years.

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 3 at the start of currency collapse between the end of deflation and the start of serious inflation, probably around May 2021.

Gold has a breakout to a marginal new high, but in the process has strengthened the incumbent sell divergence. The behaviour of the gold price is also linked to general equity behaviour, in that once equity declines gather momentum it will lead to deflation which will envelop gold into declines. The gold cycle is probably now due to start weakening, due to the virtually uninterrupted advance from Oct 2018 as well as sharp volume declines during 2020. Confirmation of a top will include penetration of the key support level at $1674.

Once a top is confirmed, the 2020 consolidation could respond similarly to the aftermath of the 2016 and 2018 consolidations. These declined quickly after breakdowns to well below the 200-Day EMA (blue), and a similar drop now could witness a gold price decline of $200-$300 into the 1st decline target region between $1450-$1550, sometime during Jul-Sep 2020.

The gold breakout to a new high in the broadening top consolidation, also presents as a secondary sell divergence followed by the gold price weakening slightly. This is probably the top of the cycle which will be confirmed by penetrating the key support line at $1674 which will start the next decline phase.

The 3-month chart illustrates the multi-breakout run to a new high, with still no confirmation of a top in evidence yet. A slightly slower rate of increase is evident during the last week.

Brent Crude Oil

Oil advances above recent consolidation to a new 4 month high, due partly to marginal fundamental improvements and partly due to the sluggish resumption of US equity declines. But it has created a sell divergence in the process which is likely to push the oil price lower, and therefore the triangles are more likely to break down rather than up.

South African Rand

The US$ / Rand flag breakout is positive the dollar and negative the Rand, but momentum is reducing. The trigger remains penetration of the resistance neckline at $17.50 which is delayed slightly. As a consequence the MACD breakout is moving towards a breakback which is close to happening.

HUI / Gold Ratio

The HUI /Gold ratio breakout has propelled price up to a double top high, as miners’ gains accelerate against gold gains. Momentum is up, 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, except more positive. US miners’ gains have accelerated through multi-breakouts to a new high. But any confirmed reversal will start testing key supports, and if gold has topped out then miners will be under increased pressure to maintain price levels. Further weakness will gather momentum in closing the gap, breaching key support, and finally testing the previous low at 142 during Mar 2020.


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

Dust has broken down through the double bottom and intensified the long term buy divergence. Activation of the divergence will also be a breakout of the reducing wedge, and the whole configuration suggests a top in US miners is very close. Being a US miners bear index it responds in geared opposition to metals and miners 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, although it has probably now topped out. 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 inflection point 3 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.

Silver penetrates the quadruple top, marginally, but without achieving a long term high. 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 levels remain at $17.00 and $14.50, to confirm the top is in and eliminate any further bullish potential.

Silver has a breakout to a new short term high, but in the process creates a new sell divergence. This should supply the energy for lower prices from here. A key breakline is at $17.00 in the near exact position of the 200-Day MA (green), and penetration of this level will confirm silver’s top and eliminate any further upside potential.

The silver miners chart is similar to the gold miner charts in breaking up to a new high. But in the process it has created a sell divergence which could assist in reducing price levels. A confirmed reversal will start testing key supports and finally testing the previous low at 16 during Mar 2020.

Gold : Silver Ratio

The gold / silver ratio closed lower at 95.02 in celebrating the late surge in metal prices over the last 10 trading days. But it seems the bottom is in to be followed by higher ratios and lower metal prices. If the ratio now starts to advance, this means silver will decline faster than gold, and vice versa.

General Equities

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. Movement is sluggish however, with little more than a 1000 point spread in sideways drift mode for about a month now.

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 9 Jul 2020

Jul 9th, 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. But movement is sluggish however, with little more than a 1000 point spread in sideways drift mode for about a month now. This has the knock-on effect of retarding movement in values of other elements of the market, such as the dollar, gold, US Treasuries, commodities, and much else such as deflation, inflation, interest rates, etc. The long term view of the Dow Jones Ind Ave remains the same however, and 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 15 000.

Rather than to describe movement of each element in the summary, it seems more appropriate on this occasion to describe the structure of the whole market in terms of inflection points over a 5 year period, as envisaged by the writer knowing that forecasts can be very wrong.
Global developments can be structured into ‘building blocks’ that can be defined in a particular way, and divided into segments separated by 4 clear inflection points. Only the Dow Jones, Gold, US$ index, and the US Treasury 10 year yield have been used in this structure, to the exclusion of everything else.

Inflection point 1 in Feb 2020: Top of the US equity market with the Dow at 29 500;

Inflection point 2 in Jun 2020: Dow at start of Primary wave 3 down at 27 700, Gold at $1 800, US$ index at 96;

Inflection point 3 in May 2021: Dow at end of Primary wave 3 down at 10 000, the bottom of the Gold market at $900, US$ index up at 105-110 at the start of confidence collapse in Fiat currencies, US Treasury 10 year yield at zero before long term advance towards normalising interest rates;

Inflection point 4 sometime in 2024: Global reset of the international monetary system, gold between $5 000 – $10 000, Dow close to 1 000, US$ index at 65 or below, US Treasury 10 year at 5% to normalise interest rates;

US Dollar
Pic US$ 30Y

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.
Pic US$ 5y

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 inflection point 2 as dollar demand increases with US equities now beginning the next major decline phase. This is supported by a grouping of bullish candles (black circle) as the dollar prepares to move up in a strengthening 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. However, US equities are moving lower very sluggishly which might retard dollar strength and even prompt dollar weakness first.

The 3 month chart illustrates dollar progress after the bull flag breakout. Although a strong rally is forecast from this region the dollar needs to penetrate the key neckline at $97.80 first, and timing depends on the energy or sluggishness of US equity declines.

EuroDollar

The Eurodollar chart is similar to the dollar index chart, except in the opposite direction (including a breakdown through the MACD), and sluggish US equity declines could similarly cause EuroDollar strength before the ultimate weakness prompted by penetration below the neckline at 1.1165.tom. Nevertheless a strong decline is eventually likely from this region in response to corresponding dollar strength.

US Treasuries

The benchmark 10 year US Treasury yield continues to develop a fragile support base which looks more likely to break down into the support zone than to display some mild bullish formations as the building process develops. Because the sell divergence is likely to assist in reducing yield further, even towards zero. 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 interventions, 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 at inflection point 3 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, pending US equity behaviour. At this stage it indicates limited US Fed interference, but as equity declines gather momentum so too should yield decline. It is possible the Fed will nevertheless not manipulate yield below zero.

Gold

Gold has reached the 2012 high as the long term 10 year chart presents as twin peaks in a massive double top which has severe bearish implications, once activated. Price has now probably topped at the end of a 5 year bear market rally, which is likely to move into protracted declines perhaps lasting years.

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 3 at the start of currency collapse between the end of deflation and the start of serious inflation, probably around May 2021.

Gold has a breakout to a marginal new high, but in the process has strengthened the incumbent sell divergence. The behaviour of the gold price is also linked to general equity behaviour, in that once equity declines gather momentum it will lead to deflation which will envelop gold into declines. The gold cycle is probably now due to start weakening, due to the virtually uninterrupted advance from Oct 2018 as well as sharp volume declines during 2020. Confirmation of a top will include penetration of the key support level at $1674.

Once a top is confirmed, the 2020 consolidation could respond similarly to the aftermath of 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 into the 1st decline target region between $1450-$1550, sometime during Jul-Sep 2020.

The gold breakout to a new high in the broadening top consolidation, also presents as a secondary sell divergence. This is probably the top of the cycle which will be confirmed by penetrating the key support line at $1674 which will start the next decline phase.

The 3-month chart illustrates the multi-breakout run to a new high, with still no confirmation of a top in evidence yet.

Brent Crude Oil

Oil advances above recent consolidation to a new 4 month high, due partly to marginal fundamental improvements and partly due to the sluggish resumption of US equity declines. 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 during the collapse in Feb/Mar.

South African Rand

The US$ / Rand flag breakout is positive the dollar and negative the Rand, but momentum is reducing. The trigger remains penetration of the resistance neckline at $17.50 which is delayed slightly. As a consequence the MACD breakout is moving towards a breakback which is close to happening.

HUI / Gold Ratio

The HUI /Gold ratio breakout has propelled price up to a double top high, as miners’ gains accelerate against gold gains. Momentum is up, 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, except more positive. US miners’ gains have accelerated through multi-breakouts to a new high. But any confirmed reversal will start testing key supports, and if gold has topped out then miners will be under increased pressure to maintain price levels. Further weakness will gather momentum in closing the gap, breaching key support, and finally testing the previous low at 142 during Mar 2020.


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

Dust has broken down through the double bottom and intensified the long term buy divergence. Activation of the divergence will also be a breakout of the reducing wedge, and the whole configuration suggests a top in US miners is very close. Being a US miners bear index it responds in geared opposition to metals and miners 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, although it has probably now topped out. 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 inflection point 3 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.

Silver penetrates the quadruple top, marginally, but without achieving a long term high. 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 levels remain at $17.00 and $14.50, to confirm the top is in and eliminate any further bullish potential.

Silver has a breakout to a new short term high, but in the process creates a new sell divergence. This should supply the energy for lower prices from here. A key breakline is at $17.00 in the near exact position of the 200-Day MA (green), and penetration of this level will confirm silver’s top and eliminate any further upside potential.

The silver miners chart is similar to the gold miner charts in breaking up to a new high. But in the process it has created a sell divergence which could assist in reducing price levels. A confirmed reversal will start testing key supports and finally testing the previous low at 16 during Mar 2020.

Gold : Silver Ratio

The gold / silver ratio closed lower at 95.02 in celebrating the late surge in metal prices over the last 10 trading days. But it seems the bottom is in to be followed by higher ratios and lower metal prices. If the ratio now starts to advance, this means silver will decline faster than gold, and vice versa.

General Equities

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. Movement is sluggish however, with little more than a 1000 point spread in sideways drift mode for about a month now.

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 2 Jul 2020

Jul 2nd, 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 well as a strong sell divergence signal which will provide added decline energy to gain momentum.

Decline progress is not rapid however, as investor sentiment remains euphoric with few actually believing this to be a bear market at all. This has the knock-on effect of retarding movement in values of other elements of the market, such as the dollar, gold, US Treasuries, commodities, and much else such as deflation, inflation, interest rates, etc. The long term view of the Dow Jones Ind Ave remains the same however, and 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, albeit still hesitantly. 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 reached the 2012 high which now presents as twin peaks in a massive double top which has severe bearish implications, once activated. Price has now probably topped at the end of a 5 year bear market rally, which is likely to move into protracted declines perhaps lasting years. 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 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. This is supported by a grouping of bullish candles (black circle) as the dollar prepares to move up in a strengthening 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. However, US equities are moving lower very sluggishly which might retard dollar strength and even prompt dollar weakness first.

The 3 month chart illustrates dollar progress after the bull flag breakout. Although a strong rally is forecast from this region the dollar needs to penetrate the key neckline at $97.80 first, and timing depends on the energy or sluggishness of US equity declines.

EuroDollar

The Eurodollar chart is similar to the dollar index chart, except in the opposite direction (including a breakdown through the MACD), and sluggish US equity declines could similarly cause EuroDollar strength before the ultimate weakness prompted by penetration below the neckline at 1.1165.tom. Nevertheless a strong decline is eventually likely from this region in response to corresponding 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 interventions, 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 from 0.17% to 0.14% over 3 weeks. This indicates limited US Fed interference at the moment, despite the start of (sluggish) equity weakness which nobody believes yet. This is a good indicator of US Fed action once equity declines accelerate.

Gold

Gold has reached the 2012 high as the long term 10 year chart presents as twin peaks in a massive double top which has severe bearish implications, once activated. Price has now probably topped at the end of a 5 year bear market rally, which is likely to move into protracted declines perhaps lasting years.

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 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 after confirmation of the gold top.

The 2020 consolidation could respond similarly to the aftermath of 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 into the 1st decline target region between $1450-$1550, sometime during Jul-Sep 2020.

Gold has a breakout to a new high in the broadening top consolidation, which also presents as a sell divergence. This is probably the top of the cycle which will be confirmed by penetrating the key support line at $1674 which will start the next decline phase.

Gold turns down from the peak and sequential break lines leading down to final confirmation of a top at $1674 are situated at $1754 and $1706.

Brent Crude Oil

Oil is consolidating 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 during the collapse in Feb/Mar.

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 Rand declines ahead, but only after penetration of the resistance neckline at $17.50. 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 has a breakout in a weakening top pattern with strength in the tail. The ratio indicates US Miners gains accelerating against gold gains, but the pattern has not achieved a new high. Key breaklines need to be breached before any certainty is possible.

HUI Gold Bugs Index

The HUI itself has a virtually identical chart pattern, also with a breakout of the reducing wedge and also without a new high. If gold has topped out then miners will be under increased pressure to maintain price levels. Further weakness will gather momentum in closing the gap, breaching key support, and finally testing the previous low at 142 during Mar 2020.


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 have lost momentum in the bottom consolidation, and have in fact created a double bottom with further bearish implications, if activated. However, the long term buy divergence is still active and the chart will gather positive momentum again as 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, although it has probably now topped out.

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 inflection point 2 at the start of currency collapse between the end of deflation and the start of serious inflation, sometime during 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.

The late rally has created a quadruple top which has held intact, with no break up to a new high. 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) and initial support level at $17.00. To confirm silver’s top, price needs to break through $17.00 and finally $14.50 to eliminate any further upside potential.

The silver miners chart is similar to the gold miner charts in failing to break up to a new high. The top pattern is a triple top which has held intact, in the wake of the bear flag breakdown. Any sustained weakness will gather momentum in closing the gap, breaching key support, and finally testing the previous low at 16 during Mar 2020.

Gold : Silver Ratio

The gold / silver ratio closed lower at 97.70 as it nevertheless builds 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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