Market Analysis 17 Dec 2020
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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