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Market Analysis 29 Oct 2020

Oct 29th, 2020

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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