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Market Analysis 10 Dec 2020

Dec 10th, 2020

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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