Home > Uncategorized > Market Analysis 11 Feb 2021

Market Analysis 11 Feb 2021

Feb 11th, 2021

Executive summary

The Dow Jones extends its rally to a new high as the start of a decline phase awaits. This is a culminating bull market which will morph into a bear market as the year 2021 continues to progress. Many different aspects of investor sentiment have evolved through exuberant to euphoric and beyond as the market surge has swollen through various risk barriers towards madness. When the final turn is triggered it will be a deluge probably setting more records than the climb to the top.


The US dollar strengthening phase has stalled and may weaken further before eventually becoming supercharged once US equities actually start real declines. Gold is poised to resume declines and US miners continue to look bearish.

Dow

The Dow Jones extends its rally to a new high as it extends the sell divergence and rising wedge pattern which in turn threatens the start of a decline phase. This is a culminating bull market which will morph into a bear market as the year 2021 continues to progress. The sell divergence is in fact a compound divergence of numerous sub-sets stretching back nearly 6 months. Many different aspects of investor sentiment have evolved through exuberant to euphoric and beyond as the market surge has swollen through various risk barriers towards madness. When the final turn is triggered it will be a deluge probably setting more records than the climb to the top.

US Dollar

The dollar corrects down in its strengthening phase, although still powered by 2 consecutive buy divergences with the additional support of bullish Cots data. This correction may still develop more downward momentum, but there is a strong link between dollar strength and US equity decline. If there are further equity gains then the dollar will continue to languish, and vice versa. Dollar strength will become supercharged once US equities actually start real declines.

In long term data in the weekly 5 year chart the dollar breakout has stalled and could be invalidating. If not, it may turn out to be a ‘kiss goodbye’ providing momentum to the dollar rally. This is truly a pregnant moment, because dollar strength now reflects US equity weakness as well as gold weakness, and of course vice versa.

US dollar Cots data, which admittedly is not a short term indicator, is still dollar bullish (for close to 3 months now). And whether the dollar weakens next or not it will strengthen eventually, and quite soon too.

EuroDollar

The EuroDollar corrects up in its weakening phase, although still powered by 2 consecutive sell divergences with the additional support of bearish Cots data (not shown). And, like the dollar except opposite, this correction may still develop more upward momentum, but the Euro is a follower not a leader, and will be driven inversely by the impacts driving the dollar. Euro weakness is also supported by the increasingly negative economic data coming out of the EU (certainly when compared with the US which is bad enough).

US Treasuries

The US Treasury 10 year yield rises above the 11 month peak, as US equities go to a new high, but in so doing it creates a sell divergence. This is in addition to the sell divergence in the long term data 5 year chart (not shown this week). So, yield still continues to grind up slowly within the confines of the rising channel, and this is supported by the ‘gold cross’ (black arrow) with the 50-Day MA (red) crossing up through the 200-Day MA (green) which finally signals a move towards higher interest rates. But for certainty, we need increased yields during the ‘acid test’ when equities are actually declining, which they are not doing yet.

Gold

Gold is poised to decline further with support from Cots data (next chart). There is a strong link between the gold price and US equities and the dollar, and fortunes in the gold market are driven more by this link than by the gold chart at the moment. There is a breakdown below the expanding triangle support line, but the gold price still meanders down the reducing channel which could threaten a breakout to higher levels if breached. Gold may rally slightly further but is destined to decline severely soon. A key rally level would be at the start of resistance at $1875, and thereafter a test of the support zone down towards $1670.

Gold Cots data indicates continued massive dilation (red circle) which is bearish with gold 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 gold.

South African Rand

The Rand strengthens against a weaker dollar, and continued Rand strength seems likely. Much depends on dollar strength which in turn depends on US equity direction. For now, the US$ZAR continues to drift lower within the confines of the reducing channel which eventually 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 correcting up slightly, in the wake of the buy divergence, although resistance at the 50-Day MA (red) appears to be holding. The bearish dome continues to hold out but the chart continues to look bearish with the promise of lower miner and gold prices to come.

GDX US Gold ETF

GDX has a similar chart but is somewhat less bullish. The bearish dome continues to hold out and the H&S continues to promise severe declines once the neckline is breached. At the moment the 50-Day (red) and 200-Day (green) MAs provide resistance which is holding. 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 7 months. It has still not broken up, although a breakout soon continues to appear probable.

Silver

Silver is poised to decline further with support from Cots data (next chart). But, recent interest in silver has spiked and this could trigger a rally again. But much still depends on US equity direction which will accelerate (or retard) dollar strength.

Silver Cots data indicates continued 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 declined due to the bogus and temporary silver short squeeze. This reflects the increased silver price but on the chart has the effect of simply extending the double bottom. The ratio continues to drift sideways and we need more price movement to make more intelligent judgements.

Categories: Uncategorized Tags:
Comments are closed.