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Market Analysis 24 Sep 2020

Sep 24th, 2020 No comments

Executive summary

All US equity indices are declining attended by increased lack of energy and breadth with a negative NYSE advance –decline ratio as well as negative volume ratios in a wave of broader selling pressure. The Dow Jones is attended by negative configurations as the unfolding bear market begins to gather some momentum. The run-up to the US election could reverse this process, even if only partially. This has also triggered trend reversals in the US$, forex, bonds, and gold, as we enter a different market phase.

The US dollar has a breakout from its developed bottom base and has started to rally while the Euro (and forex generally) is doing the exact opposite. The benchmark 10 year US Treasury yield is still moving sideways with the acid test ahead as equities actually decline.

Gold and silver have peaked and have breakdowns through their various topping patterns, with a reversal in the gold / silver ratio which is now starting to rally. This means lower metals and miners prices ahead.

Dow

All US equity indices are now declining in unison attended by increased lack of energy and breadth with a negative NYSE advance –decline ratio as well as negative volume ratios in a wave of broader selling pressure. The Dow Jones is attended by negative configurations in a sell divergence and breakout from a rising wedge, as the unfolding bear market begins to gather some momentum. The run-up to the US election could reverse this process, even if only partially.

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 but with weakness in the tail. This dynamic will continue for now with dollar strength once US equity declines gather momentum, as we enter a new phase. A more meaningful loss of confidence in the present international monetary system will change that back to long term dollar weakness in due course.

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 equity declines. This has been identified as inflection point 2, which continues to be delayed in ‘slow-motion’ equity decline and corresponding ‘slow-motion’ US Dollar strength.

But the dollar appears to now be in a breakout similar to the reducing wedge breakout at the start of 2018. A breakout now will lead to weaker gold, which is happening.

The US dollar index has a breakout through the $94 level into the start of a strong advance from the developed base pattern of the previous 2 months. This is supported by the mid-Aug breakout in the MACD reducing wedge.

The 3 month chart illustrates the dollar breakout in more detail.

EuroDollar

The Eurodollar chart is similar to the dollar index chart, except in the opposite direction, and it presents as a breakdown from the topping pattern at the 1.17 level. This should now test the support zone with the potential of breaching the 1.1165 level.

US Treasuries

The benchmark 10 year US Treasury yield continues to drift sideways as the bonds consolidate just below peak levels. The buy divergence which provided some earlier impetus seems to have played out, and any potential trend reversal is therefore still held in abeyance. Interest rates will eventually normalise but only after the end of the artificial period of Modern Monetary Theory interference, and to get nearer to that the system requires the default to be broken and changed during an extended period.

Short term US Treasury yields are still holding in a narrow range, which is a reflection of US equities still not collapsing with any momentum. 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

The gold decline after the spike high has gathered some momentum. It appears there may now be 2 options as the major retracement down unfolds:

Option 1 : Price will test the support levels which could go down towards $1790, before reversing up to new all-time highs. Thereafter price will continue down to test both the 1st support zone and the major support zone to eventually reach lows below $1045;

Option 2 : This is the start of price declines to eventually reach lows below $1045;

The two opposing forces impacting the gold market, in equity collapse sucking gold down and the warped global monetary system boosting gold higher, will likely prevail in the case of the former and not the latter. 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.

The gold decline in the wake of the sell divergence has gathered some momentum. It is now likely to either:
Play out in testing the $1790 level before reversing to new all-time highs;
Gather additional decline momentum and continue declining;

The gold cycle is weakening after a virtually uninterrupted advance from Oct 2018, and the next key support level is at $1790.

The topping pattern is starting to break down but traction is not yet strong. The $1790 level is key.

The 3 month chart illustrates the breakdown in more detail.

Brent Crude Oil

Oil declines in the wake of the sell divergence, but with a partial recovery. There is a strong link between the oil price and stability in the US equity market, and is likely to weaken further if equities weaken further.

South African Rand

The Rand weakens against dollar strength, and has penetrated through the 50-Day moving average (red). But the chart is drifting sideways and is almost trendless, although within a reducing wedge which indicates potential Rand weakness ahead.

Hui : Gold Ratio

The ratio declines into a marginal breakdown, but still with little traction. The chart is nevertheless in the wake of sell divergence, down from the apex of the expanding triangle, and breakdowns in 2 rising wedges. This all indicates further potential breakdowns.

GDX US Gold ETF

GDX has a similar bearish topping pattern but with slightly more traction. It also turns down from the apex of the expanding triangle and consecutive breaks through rising wedges, which all indicates further breakdowns.


This situation applies also to all US miners, and HUI, GDXJ, and XAU are all positioned in likewise charts subject to further breakdowns.


Dust US Miners Bear Index

The Dust chart is building a base for breakout (black rectangle) which will activate aggressively once the long term buy divergence and the reducing wedges trigger into testing resistance. Resistance starts at the trigger level of $21.This is bullish for Dust and bearish for metals and miners, being a US miners bear index.

Silver

Silver continues in non-confirmation against gold, with the inability to reach new highs. But if silver were to confirm with gold from here, it too would have 2 options:

Option 1 : Price will test the support levels which could go down towards $19, before reversing up to new highs. Thereafter price will continue down to test support to eventually reach lows below $11.60;

Option 2 : This is the start of price declines to eventually reach lows below $11.60;

Like gold, the two opposing forces impacting silver, in equity collapse sucking silver down and the warped global monetary system boosting silver higher, will likely prevail in the case of the former and not the latter. 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 3 at the start of currency collapse between the end of deflation and the start of serious inflation, probably around mid-2021.

Silver’s top consolidation starts to break down, and in doing so it could trigger the potential bear flag with further declines.

The topping pattern breaks down and is set to test support. Both the rising wedge support line and primary support at $23.50 is breached.

The 3-month chart illustrates the breakdowns in more detail.

The silver miners chart is similar to the gold miner chart in breaking down from the apex of the bearish expanding triangle and consecutive breaks through the rising wedges. This, as with gold miners, has bearish implications of declines in an extended multi-month phase. Support is available at the levels indicated.

Gold : Silver Ratio

The gold / silver ratio increases in the wake of the buy divergence and closed higher at 80.87, reflecting the lower metal prices. There is a breakout from the declining channel and it appears as if the ratio has bottomed and is at the start of a rally. This means lower metal p

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Market Analysis 10 Sep 2020

Sep 10th, 2020 No comments

Executive summary

Markets have been in the grip of primary wave 2 up in the equity bear market for the past 6 months. This has had a neutralising effect of stalling trends and leaving markets in limbo as opposed to reacting naturally to the various impacting factors. We may now be close to the end of this period and returning to normality.

Signals are now appearing in the US equity market indicating that Primary wave 2 up has in fact ended and that Primary wave 3 down could be in its very early stages. This will trigger trend reversals in the US$, forex, bonds, and gold, as we enter a different market phase.

The US dollar is building a bottom base from which to launch a strong rally while the Euro (and forex generally) is preparing to do the exact opposite. The benchmark 10 year US Treasury yield is showing signs of strengthening, although still mild with the acid test ahead as equities actually decline.

Gold and silver have peaked and are likely to undergo large price retracements, although declines are still limited. But the gold / silver ratio has potentially ended its 6 month decline with a buy divergence signal which could provide the impulse for an extended rally. This means lower metals and miners prices ahead.

Dow

Primary wave 2 in the Dow Jones has continued to edge up as it narrows at the apex of the rising wedge. In the process it has strengthened the sell divergence signal with both oscillators trending down, and the index itself has finally broken down at the apex of the rising wedge. The sell divergence will provide decline energy and if this is indeed the start of primary wave 3 down then the unfolding bear market is about to gain momentum. This should drop the Dow Jones to the 25000 level, being the last significant low point. This prognosis is supported by continued lack of energy and breadth in the US equity market characterised by extreme investor optimism, all compatible with the culmination of a trend.

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 but with weakness in the tail. 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. A more meaningful loss of confidence in the present international monetary system will change that back to long term dollar weakness in due course.

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 starting primary wave 3 down. This has been identified as inflection point 2, which continues to be delayed in ‘slow-motion’ equity decline and corresponding ‘slow-motion’ US Dollar strength.
The present circumstance is embodied in a reducing wedge which is about to activate, in similar fashion to the earlier reducing wedge breakout in Apr 2018. A breakout now will lead to weaker gold, and vice versa.

The dollar continues to develop a bottom base from which to launch, and appears to be close to the start of a strong rally. A breakout above $94 will indicate the strengthening phase is underway.

The 3 month chart illustrates the development of the bottom base in more detail, and the start of a strong advance. Penetration of $94.00 is the key which will indicate that the strong advance has started.

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. But the EuroDollar is developing a topping pattern which needs to breach the 1.17 level to trigger declines.

US Treasuries

The benchmark 10 year US Treasury yield strengthened in the wake of the buy divergence and the breakout of the declining channel. Although this presents as a stronger case for increasing yield, it is still mild with yield essentially still only moving sideways. Consequently, US Treasury prices have only weakened slightly and are still in a sideways consolidation at peak levels. This cannot as yet be termed a trend reversal, and the acid test will only be once US equities actually resume serious declines in the next major leg down. At that point resultant money flows from equities back into treasuries plus US Fed interventions will have the effect of increasing bond prices and reducing yields, yet again.

Short term US Treasury yields are still holding in a narrow range, which is a reflection of US equities still not collapsing. 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

The gold decline after the spike high has still not gained momentum, despite the RSI sell divergence which should have prompted a major retracement down. Although a cyclical retracement is still forecast that is likely to at least break down into the 1st support zone. The two opposing forces impacting the gold market, in equity collapse sucking gold down and the warped global monetary system boosting gold higher, will likely prevail in the case of the former and not the latter. Gold 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.

The gold decline in the wake of the sell divergence is in muted progress, because it still holds above 10-Dema (blue). However, gold is still likely to develop at least into a major retracement which is likely to penetrate well into the 1st support zone during the first decline phase. The gold cycle is now due to start weakening after a virtually uninterrupted advance from Oct 2018, and the next key support level is at $1790.

The topping pattern is starting to break down through the rising wedge support line, but further declines will only be triggered once pre-support is penetrated.

The developing topping pattern is holding at 10-Dema (blue) and this connection needs to be broken for price to move either way.

Brent Crude Oil

Oil declines in the wake of the sell divergence as it breaks with recent price patterns. There is a strong link between the oil price and stability in the US equity market, and is likely to weaken further if equities weaken further.

South African Rand

The Rand strengthened back to 200-Dema (green) as it continues to hold above this moving average. The chart is converging towards a triangle apex and is likely to break up to weakness as the dollar starts its strengthening rally, as forecast.

Hui : Gold Ratio

The ratio is declining from the peak marginally. But, in the wake of the sell divergence at the apex of the expanding triangle and consecutive breaks through rising wedges, the ratio is likely to weaken further.

GDX US Gold ETF

GDX has a similar bearish topping pattern which turns down from the apex of the expanding triangle and consecutive breaks through rising wedges. Price is therefore likely to weaken further with initial support at 39 being the first trigger level.


This situation applies also to all US miners, and HUI, GDXJ, and XAU are all positioned in likewise charts subject to testing previous lows now that the gold rally has terminated.


Dust US Miners Bear Index

The Dust chart is building a base for breakout (black rectangle) which will activate aggressively once the long term buy divergence and the reducing wedges trigger into testing resistance. Resistance starts at the trigger level of $21.This is bullish for Dust and bearish for metals and miners, being a US miners bear index.

Silver

Like gold, the silver decline after the spike high has still not gained momentum, but unlike gold, the spike high is well below the previous high which presents as a major non-confirmation and is one of the strong contributors to both metals declines into trend reversals. A major period of decline lies ahead, and as with gold, 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’s decline after the spike high is consolidating and not gaining momentum. We do await a cyclical retracement although it appears other short term options may be developing. However, the recent 6 month activity is compressed into a potential bear flag with extreme bearish implications.

The developing topping pattern is not signalling potential breaks either way.

Price is holding below 10-Dema (blue) and initial support resides at $26.

The silver miners chart is similar to the gold miner chart in breaking down from the apex of the bearish expanding triangle and consecutive breaks through the rising wedges. This, as with gold miners, has bearish implications of declines in an extended multi-month phase. Support is available at the levels indicated.

Gold : Silver Ratio

The gold / silver ratio chart boasts a buy divergence at the bottom of the declining channel. This will encourage the start of a rally leading to higher ratios in a trend change after 6 months of declines. This could be the trigger to start a run of lower metals and miners prices.

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