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Market Analysis 17 Dec 2020

Dec 17th, 2020 No comments

Executive summary

The Dow Jones continues to hold new highs and with the exuberance of US equity investor optimism through most of 2020 it could just as easily pop to another new high (with the added cheer of some Christmas spirit). But real market problems remain however, such as a broken international monetary system, artificially low interest rates in a world awash with exponential debt, and post-Covid economic devastation. So, the long term deflationary spiral will be severe, when it finally starts.

The dollar is now very close to a bottom after 10 months of decline, and is about to start strengthening. This is supported by Cots data and virtually identical but opposite data in the Euro. US miners are looking increasingly bearish with large dome patterns and this could trigger forecast declines in gold and silver.

Dow

The Dow Jones continues to hold new highs as it extends the sell divergence which remains active. This presents as a potential top and the start of a reversal, but with the exuberance of US equity investor optimism through most of 2020 it could just as easily pop to another new high first (with the added cheer of some Christmas spirit). The three top primary US equity indices continue non-confirmations which is normal at major trend changes, with the Dow lagging the S+P and Nasdaq at the moment.
Real market problems remain however, such as a broken international monetary system, artificially low interest rates in a world awash with exponential debt, and post-Covid economic devastation. So, the long term deflationary spiral will be severe, when it finally starts.

US Dollar

The US dollar index is in the late stage of a bottoming pattern after 10 months of decline, as it also presents as a buy divergence which promises a potential bottom at the start of a new strengthening phase. This is also supported by COTS data (next chart) and reciprocal evidence in the Euro chart. The US dollar bottoming pattern is in the lower regions of a well-defined reducing wedge which should propel price well up into resistance after a successful breakout.

US$ Cots data indicates a ’constriction’ phase (black circle) which supports dollar stengthening, similar to Mar 2019.

EuroDollar

The Eurodollar chart presents as the virtual opposite of the dollar index chart, supported technically by the sell divergence. This should reduce Euro value and a downside break from the top pattern, which reciprocally supports a stronger US dollar.

Euro Cots data (not shown) also supports a weaker Euro with a virtually identical chart to the US dollar, except opposite.

US Treasuries

There is virtually no change in US Treasuries. The 10 year yield continues to grind up slowly which means Treasury prices continue to decline off peak levels slowly. But for interest rates to start normalising (rising) they will have to do so during the ‘acid test’ when equities are actually declining, which they are not at the moment. During equity declines money flows back into bonds plus central bank interventions (bond purchasing) has the effect of reducing yields. So there is very little occurring in the US Treasury market at the moment.

Gold

Gold continues to correct up within the reducing channel, with little seeming attempt to test either support or resistance. However, Cots data (next chart) indicates gold declines are next.

Gold Cots data indicates massive dilation (red circle) which is bearish with gold declines to come next. This can be seen (verified) by the opposite massive constriction which occurred in Sep 2018 at the start of a strong strengthening phase in gold.

South African Rand

The Rand is in the late stage of a strengthening pattern which also presents as a dollar buy divergence (Rand sell divergence). This is therefore in strong reversal territory and is likely to weaken the Rand in the next period.

Hui : Gold Ratio

The HUI / Gold ratio bearish dome pattern continues to develop as miners lead gold lower (albeit only marginally). The chart is bearish and should weaken further, in the wake of decline from the apex of the expanding triangle, and consecutive breakdowns in rising wedges.

GDX US Gold ETF

GDX has a similar topping pattern with similar 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 which is proving to be a long time coming. It has still not broken up, although indications point to a strong breakout at some point.

Silver

Silver continues to correct up, and continues to do so in outperforming gold slightly. But, Cots data (next chart) indicates silver declines are next

Silver Cots data indicates massive dilation (red circle) which is bearish with silver declines to come next. This can be seen (verified) by the opposite massive constriction which occurred in Sep 2018 at the start of a strong strengthening phase in silver.

Gold : Silver Ratio

The gold / silver ratio closed slightly lower as it moves closer to the triangle apex, below the resistance shelf. In doing so, silver is outperforming gold slightly, but if metal prices move lower the ratio will break up to higher levels.

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Market Analysis 10 Dec 2020

Dec 10th, 2020 No comments

Executive summary

The Dow Jones breaks up to new highs which could extend into 2021, all accompanied by sentiment extremes. At the same time this suggests a downward trend reversal could occur at any time, developing into a long term deflationary spiral. The picture continues to be distorted by the Covid-19 pandemic with more euphoria as vaccines become increasingly available, which camouflages the real problem which is a broken international monetary system and artificially low interest rates in a world awash with exponential debt. So, we move ever nearer to a cataclysmic break point or extend ever further into a make believe wonderland that cannot last.

The dollar is at, or very near to, the end of a decline phase and is about to start strengthening, supported by equal weakness in the Euro. Gold and silver end short term corrections up and turn down to start testing support. US miners are looking increasingly bearish with large dome patterns.

Dow

The Dow Jones breaks up to new highs which could extend into 2021, all accompanied by sentiment extremes. At the same time this suggests a downward trend reversal accompanied by an extension to the sell divergence. The downward trend reversal could be the start of a long term deflationary spiral and the picture continues to be distorted by the Covid-19 pandemic with more euphoria as vaccines become increasingly available, fuelling the already extreme sentiment. This camouflages the real problem which is a broken international monetary system and artificially low interest rates in a world awash with exponential debt. So, we move ever nearer to a cataclysmic break point or extend ever further into a make believe wonderland that cannot last.

US Dollar

One of the ‘links’ in the market is a lower dollar value in the face of equity advances, and vice versa. And true to this maxim is a dollar that is at, or very near to, the end of a decline phase which has seen the US dollar index lose 12.5% since March this year, as the Dow advanced 65%. This suggests the dollar is about to enjoy a trend reversal as it could soon start to strengthen. Technically this is also supported by a buy divergence to increase dollar value from a potential bottom.

EuroDollar

The Eurodollar chart presents as the virtual opposite of the dollar index chart, supported technically by the sell divergence. This should reduce Euro value from the potential top pattern, which also supports the view of US dollar strength next.

US Treasuries

US Treasury 10 year yield continues to grind up slowly which means Treasury prices continue to decline off peak levels slowly. But for interest rates to start normalising (rising) they will have to do so during the ‘acid test’ when equities are actually declining, which they are not at the moment. During equity declines money flows back into bonds plus central bank interventions (bond purchasing) has the effect of reducing yields. So there is actually nothing indicative occurring in the US Treasury market at the moment.

Gold

Gold ends the short term correction up and turns down to start testing support. Whether gold performance is linked to equity performance or dollar value movement, the gold chart appears set to move lower.

South African Rand

The Rand has strengthened 23% against the US$ since March this year and has moved into reversal territory supported by a dollar buy divergence signal. This is likely to weaken the Rand in the next period.

Hui : Gold Ratio

The HUI / Gold ratio is building a bearish dome pattern as miners start to 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 with similar 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 which is proving to be a long time coming. It has still not broken up, although indications point to a strong breakout at some point.

Silver

Silver ends the short term correction up and turns down to start testing support, which is some way off still. Silver will need to drop significantly before actually testing support.

Gold : Silver Ratio

The gold / silver ratio closed slightly lower as it moves closer to the triangle apex, below the resistance shelf. If metal prices move lower the ratio will break up to higher levels.

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