Home > Uncategorized > Market Analysis 21 Jan 2021

Market Analysis 21 Jan 2021

Jan 21st, 2021

Executive summary

The Dow Jones continues to hold to new highs and remains close to a major reversal. Yet it may still go higher as it basks in the euphoria of a very successful US presidential inauguration with many positive political slants towards nation rebuilding and recovery. This, in spite of real market problems 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, which is forecast to happen at any time soon.

The US dollar appears to have bottomed at the start of the next strengthening phase. This is linked to US equities, and a top there could see a bottom in the dollar. Gold is poised to resume declines and US miners continue to look bearish.

Dow

The Dow Jones continues to hold to new highs and remains close to a major reversal. Yet it may still go higher as it basks in the euphoria of a very successful US presidential inauguration with many positive political slants towards nation rebuilding and recovery. Technically, the chart presents as an enlarging rising wedge climaxing into an enlarging sell divergence which will collapse the structure at any moment. This is a potential top waiting to happen, as it remains elevated by nothing more than continued exuberance of US equity investor optimism.

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, which is forecast to happen at any time soon.

US Dollar

The US dollar index appears to be bottoming, driven by 2 consecutive buy divergences in a 6-month bottoming pattern which promises the start of a new strengthening phase. This is supported by COTS data (next chart) and reciprocal evidence in the Euro chart. The US dollar 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 circles) which supports dollar strengthening, similar to Mar 2019.

The 5 year dollar chart illustrates the similarity between the current bullish reducing wedge and that of about 3 years ago. A breakout of the reducing wedge now will lead into the next strength phase, which supports the notion of much weaker gold ahead.

EuroDollar

The Eurodollar chart reflects the virtual opposite of the dollar index chart, also supported technically by 2 consecutive sell divergences. 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. There is a small interruption to the process (horizontal black arrow) with yield dropping slightly as US equities go to new highs. But yield has doubled to 1.10% in the last 6 months and a ‘gold cross’ has been created with 50-day moving ave. (red) crossing up over 200-day moving ave. (green) (inclined black arrow), which finally signals a move towards higher interest rates. But for certainty, we need this to happen during the ‘acid test’ when equities are actually declining, which they are not at the moment. Also, the weekly 5 year chart (next) indicates that the whole process could be reversing soon anyway.

The weekly 5 year chart presents as a potential bottom with yield doubling over the last 6 months. However, this has occurred simultaneously with the creation of a reverse sell divergence which indicates lower yields next.

Gold

Gold is poised to decline further with support from Cots data (next chart). The gold price has a breakdown from the bear flag as it ‘meanders’ further down the reducing channel, which could of course turn out to be a large bull flag!!! Much depends on US equity direction and dollar value, and break lines need to be watched carefully in the gold price.

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 corrects into strength (inexplicably fundamentally) while the dollar buy divergence is still active. The US$ZAR continues to drift lower within the confines of the reducing channel which should see greater Rand weakness once the top trendline is breached in what could end up as a large dollar bull flag.

Hui : Gold Ratio

The HUI / Gold ratio bearish dome pattern is still intact, creating high potential for breakdowns. If the gold Cots data plays out true then the HUI / Gold ratio could soon test support. The chart remains bearish and should weaken further.

GDX US Gold ETF

GDX has a similar chart with the bearish dome still intact, creating high potential for breakdowns. If the gold Cots data plays out true then US miners should soon test support also.

_________________________________________________

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 base breakout is proving to be a long time coming, and continues into 6 months. It has still not broken up, although indications point to a strong breakout at some point, which will be triggered by the end of the gold and US dollar rain dance.

Silver

Like gold, silver is poised to decline further with support from Cots data (next chart). The silver price also has a breakdown from the bear flag, but much still depends on US equity direction and dollar value, and break lines need to be watched carefully in the silver price.

Silver Cots data indicates massive dilation (red circle) which is bearish with silver declines to continue. 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 advances slightly above the double bottom level, indicating the start of potential metal price declines. But we need more price movement to judge accurately, as the ratio is at present only drifting sideways.

Categories: Uncategorized Tags:
Comments are closed.