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Market Analysis 29 Oct 2020

Oct 29th, 2020 No comments

Executive summary

Using the Dow Jones as a proxy for US equities one can see the market has started to break down. Analysis of 4 key elements in the Dow, US$, forex, and gold, indicates that since the Dow high around 13 Oct this month it has declined 8%, but gold only 2.5% and the US$ and Euro have virtually not moved at all. There is considerable equity downside to come with a strongly negative breadth week in progress coupled with continued high American optimism.

There is therefore still a strong ‘disconnect’ in US markets with the dollar and forex still moving sideways and gold not yet declining strongly. The US presidential elections are an influence, and for those who know nothing about politics, this data should suggest a Biden win.

Dow

The Dow Jones is starting to break lower, with substantial bearish potential still to come. The patterns in rising wedges and channel have broken down in the wake of earlier strong sell divergences, with strongly negative breadth now in progress coupled with continued high American optimism. The market remains at the forefront of a long term decline because of a broken international monetary system, and the economic impact of the Covid pandemic.

US Dollar

Limited US dollar index behaviour in the face of extensive Dow behaviour is partly illustrative of the ‘disconnect’ in the markets. There is only a tepid advance in a mini-break with the dollar still in a sideways movement, which could even still decline to a new low before advancing.

EuroDollar

The Eurodollar chart presents as the virtual opposite of the dollar index chart, and is also partly illustrative of the ‘disconnect’ in the markets with only a tepid decline in a sideways movement. The Euro could potentially also advance to a new high if the dollar declines to a new low. Forex generally is therefore not responding more energetically to behaviour in the equity market.

US Treasuries

US Treasury behaviour is similarly tepid as yield drops marginally in a slow grind to marginally higher yields. The benchmark 10 year US Treasury yield continues to drift sideways to up as yield rises slowly in the rising channel pattern, reflecting the starting decline of Treasury value off peak levels.

Gold

Limited gold price behaviour is also partly illustrative of the ‘disconnect’ in the markets, as gold starts to break down. But the pattern looks increasingly bearish and primary support at $1850 could be breached soon.

South African Rand

The Rand weakens slightly as it continues sideways into the reducing wedge pattern. It is dollar dependent, and if the US$ is to decline to a new low before advancing strongly, as forecast, then the Rand is likely to strengthen further before weakening substantially later on.

Hui : Gold Ratio

The HUI / Gold ratio is starting to break down, as miners lead gold lower. The chart has bearish overtones, in the wake of decline from the apex of the expanding triangle, and consecutive breakdowns in rising wedges. This all indicates further potential breakdowns.

GDX US Gold ETF

GDX has a similar topping pattern but with slightly more traction. This chart also has bearish overtones, in the wake of decline from the apex of the expanding triangle, and consecutive breakdowns in rising wedges. This all indicates further potential breakdowns and weakness in US miners.


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 continues to build a base for breakout (black rectangle) but has still not broken up. All indications point to a strong breakout soon.

Silver

Silver is starting to break down, similar to gold.

Gold : Silver Ratio

The gold / silver ratio closed slightly higher in a continued up trend indicating yet lower metal prices.

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Market Analysis 14 Oct 2020

Oct 14th, 2020 No comments

Executive summary

The US stock market, and indeed all markets, remain at the forefront of a long-term decline as the effect of numerous impacts continue to bore in and eventually collapse the structure, taking the world down into a deflationary spiral, forecast to be worse than the great depression of the 1930s. The centrepiece is the international monetary system with global exponential debt and dropping fiat currency values, as the threat of systemic crisis, hyperinflation, and massive bank failures draws nearer.

Decline of monetary system health has been on-going for a long time and can be dated back to the establishment of the US Federal Reserve in 1913, although promoted by the likes of John Maynard Keynes, during the great depression, into what we know today as Modern Monetary Theory. In 1971 US president Richard Nixon accelerated the process of decay when he de-linked the US dollar from gold convertibility which has defined the pathway towards a reset to replace the Bretton Woods agreement of 1944 which will have the effect of devaluing all currencies against gold.

But today, with a broken monetary system which is still to cause chaos in the financial markets, the world has been inflicted with the Covid-19 pandemic which devastated economies and corporate performance. This, the world believes is the cause of any financial discomfort in the markets, and will lead to recoveries as the pandemic is arrested and economies begin to recover. But that is not the case, and all the optimism and even euphoria is totally misplaced, because Covid-19 is not the cause it is merely a catalyst.

Also in the US, markets have been strongly impacted by ‘Trumpanomics’ over the last 4 years, and the lead into the US presidential election is influencing powerful pockets of euphoria based on the ‘the greatest bull market in the history of the world’. But this of course is all nonsense based on fake currency values, and although timing depends on whether Trump or Biden gets in, the final reckoning still lies ahead in a reset of Bretton Woods.

Dow

The US stock market is at a key juncture probably caused by the approach to the presidential election which again might be believed to include another helping of ‘Trumpanomics’ to extricate America from the negative effects of the Covid pandemic. It has the Dow Jones continually edging up to potentially join both the Nasdaq and the S+P in achieving a new all-time high, despite the 38% collapse from Feb this year. If a new high is achieved in the Dow, and it probably will be, it will be accompanied by a new low in the dollar, highs in forex generally, and a new high in gold. But we remain at the forefront of a long term decline because of a broken international monetary system, and whatever happens at and after the US presidential election, remain prepared for high volatility and substantial unexpected market behaviour.

US Dollar

The US$ is in long term decline but has been in a rally since 2008 with weakness in the tail. This dynamic could be threatened into continued dollar weakness if equities strengthen into the US elections, which now seems likely. A meaningful loss of confidence in the present international monetary system will nevertheless 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 weaken from the high in Mar this year due to the continued strength in US equities. The earlier dollar breakout, similar to the reducing wedge breakout at the start of 2018, has stalled and now looks likely to decline to a new low – given equity strength into the elections. A major impact of this is the effect on gold which is equally likely to go to a new all-time high.

The US dollar index breakout has reversed into declines which now threaten the support base. The earlier break line at $94 has been breached and support is now likely to be tested, with the potential of declining to a new low.

The 3 month chart illustrates the dollar breakback in more detail, with the breakout line at $94 and the breakdown line at $93.

EuroDollar

The Eurodollar chart presents as the virtual opposite of the dollar index chart, and illustrates the breakback through the key break line at 1.17 and the break line at 1.182 before testing resistance.

US Treasuries

The benchmark 10 year US Treasury yield continues to drift sideways to up as yield rises slowly in the rising wedge pattern. This mirrors the upward grind in US equities, as US Treasuries start to decline off peak levels slowly. 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 reset in the process of replacing the 1944 Bretton Woods agreement with a new one.

Short term US Treasury yields are still holding in a narrow range, and this is a reflection of US equities still not collapsing but actually increasing as well as limited US Fed interference in bond purchasing which has the effect of reducing the rate.

Gold

The gold decline after the spike high has stalled and there appears to be 2 potential options going forward:

Option 1 : Price has tested support at $1850 and could now move up to a new all-time high (with corresponding declines in dollar value). 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 : Declines will continue from here to eventually reach lows below $1045;

The two opposing forces impacting the gold market, in equity collapse well after the US elections 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 an inflection point at the start of currency collapse between the end of deflation and the start of serious inflation, probably during 2021.

Gold declines have stalled as the topping pattern continues to hold. But if the US$ continues to weaken into the US elections then gold will go to a new high. Although the gold cycle should be weakening after a virtually uninterrupted advance from Oct 2018, it now seems likely to actually ratchet up to higher levels.

The topping pattern breakdown earlier has reversed up off primary support at $1850, and seems set to advance higher although it remains dollar dependent.

The 3 month chart illustrates the breakback in more detail, with the key levels at a $1940 breakout and $1850 primary support.

Brent Crude Oil

Oil continues to decline in the wake of the sell divergence, but with weak momentum and traction although in a bear market since 2008. Price breakdowns through the 5 month diagonal support lines (red circle) indicates further declines to come. There is a strong link between the oil price and stability in the US equity market though, and therefore is likely to at least hold these levels and in fact even advance into the US elections.

South African Rand

The Rand strengthens slightly in penetrating all the MAs. But the chart is drifting sideways and is almost trendless, although within a reducing wedge which indicates some potential Rand weakness ahead.

Hui : Gold Ratio

The HUI / Gold ratio continues in the sideways top pattern, and could now start testing resistance – given the background evidence in likely dollar and gold moves. The chart is however 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 topping pattern but with slightly more traction, although in breaking down it has again broken back up through the break-line. Given the background data on the dollar and gold it seems likely to advance rather than decline. But the chart also turns down from the apex of the expanding triangle and consecutive breaks through rising wedges, which all indicates further potential 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 continues to build 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.

NUGT US Miners Bull Index

The Nugt chart reflects a consolidated top pattern likely to break out of the triangle soon. This will be up if the dollar weakens, and vice versa. The chart is a virtual opposite of the Dust chart (being a miners bull 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 has tested support at $22 and will now reverse 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 an inflection point at the start of currency collapse between the end of deflation and the start of serious inflation, probably during 2021.

Silver’s topping pattern breakdown is starting to retrace up again. A weaker dollar could lead to a new high in silver, provided there is no serious breakdown of the bear flag.

The topping pattern breakdown has broken up again to test resistance. Breaks both ways are dollar price dependent with the more likely in a silver break up to a new high.
Pic Silver 3m

The 3-month chart illustrates the breakdown and breakback in more detail, and illustrates the formation of a bearish bear flag.

The silver miners chart is similar to the gold miner chart, and it too is 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, but given the US equity and dollar behaviour it seems more likely to advance than to decline.

Gold : Silver Ratio

The gold / silver ratio advance has stalled over the last 2 weeks. Could this be the start of yet another decline? If US equity and dollar behaviour is to be believed then metal prices are to advance. If this is so the gold / silver ratio will decline.

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Market Analysis 1 Oct 2020

Oct 1st, 2020 No comments

Executive summary

The US stock market is at the forefront of a long-term decline but, as ever, also with the potential to extend the status quo at least into the US election in about 4 weeks time. Major trend reversals are starting to occur with US equities starting to break down along with forex, bonds, and gold, against a US$ starting to break up. But this is still early with a distinct contingent appearance, as the US Fed prepares to thrust the next round of QE into the market at the first sign of distress. Dislocation intensity continues to build in markets which will probably enjoy short term reversals before long term patterns establish. The Dow Jones is attended by negative configurations in a bearish breakdown from a rising wedge in the wake of a sell divergence which should trigger the decline as the bear market continues to unfold.

The US dollar index breakout stalls into indecision as the recent advance retraces below the breakout line at $94, while similar but opposite patterns develop in the Euro and forex generally. The benchmark 10 year US Treasury yield is still moving sideways with the acid test ahead as equities actually start declining.

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. But much depends on US dollar behaviour which could send gold to new highs if the dollar declines to new lows.

Dow

The US stock market is at the forefront of a long term decline but, as ever, with a distinct contingent appearance as the US Fed prepares to thrust the next round of QE into the markets at the first sign of stability distress. The Dow Jones has a bearish breakdown from a rising wedge in the wake of a sell divergence which should trigger the decline as the bear market continues to unfold.

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 could be threatened into continued dollar weakness if equities strengthen into the US elections. A meaningful loss of confidence in the present international monetary system will nevertheless 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. The present dollar breakout, similar to the reducing wedge breakout at the start of 2018, is stalling into indecision which could precipitate a decline to a new low. If this happens, it could lead to a new high in gold, and vice versa.

The US dollar index breakout stalls into indecision as the recent advance retraces below the breakout line at $94. All is held in abeyance for now as the various elements work through the system: Mainly strong dollar base build-up, against US equity decline / advance behaviour leading into the US elections in 4 weeks time.

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

EuroDollar

The Eurodollar chart presents as the virtual opposite of the dollar index chart, and illustrates the breakdown from the topping pattern and a breakback above the key 1.17 level.

US Treasuries

The benchmark 10 year US Treasury yield continues to drift sideways as the bonds consolidate just below peak levels. The earlier buy divergence has 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 a more extended period.

Short term US Treasury yields are still holding in a narrow range, although closer to the bottom of the range at 0.10%. This is a reflection of US equities still not collapsing with any momentum, as well as limited US Fed interference in bond purchasing which has the effect of reducing the rate.

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 (with corresponding declines in dollar value). 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 an 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 breakdown of the previous week has broken back up to test the break-line. Gold’s next move depends largely on US$ behaviour which depends largely on US equity behaviour. Gold’s $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 weak momentum and traction. There is a slight breakdown through the 5 month diagonal support lines (red circle). 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 strengthens slightly in penetrating the 50-Day moving average (red). But the chart is drifting sideways and is almost trendless, although within a reducing wedge which indicates some potential Rand weakness ahead.

Hui : Gold Ratio

The HUI / Gold ratio moves sideways in the top pattern with little momentum either way. 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, although in breaking down it has again broken back up through the break-line. It also turns down from the apex of the expanding triangle and consecutive breaks through rising wedges, which all indicates further potential breakdowns.

__________________________________________________

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

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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

Pic Silver Long Term

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 an 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 topping pattern is starting to break down, and there is a bear flag breakdown in process (but not complete). This could trigger deeper declines, once completed.

The topping pattern is breaking down and the primary breakdown level at $23.50 is in process (not complete).

The 3-month chart illustrates the breakdowns at the initial and primary levels in more detail.  

The silver miners chart is similar to the gold miner chart, except slightly more bearish. It too is 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 has bottomed and has started to increase in the wake of the buy divergence. The breakout from the declining channel and the buy divergence suggests lower metal prices ahead.

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