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Market Analysis 24 Feb 2021

Feb 24th, 2021

Executive summary

Rising interest rates cause asset prices to decline and the currency to advance, and they are rising in the US as Treasury yields continue to rise. Gold seems to be the first asset class to succumb and the dollar is also in the process of bottoming. But, the rise has been swift and there are signs that a correction is close which will include reversals in declining Treasury yields which will trigger lower dollar, higher gold, and ironically even yet a higher Dow Jones. But that will be a correction followed by the main trend again in higher interest rates, stronger dollar, lower gold, and equity and bond markets in a culminating bull market which will morph into a bear market as the year 2021 progresses.
The dollar is weakening in a correction before it resumes its strengthening phase. Gold and US miners have started potential rallies which, once complete, will resume further declines.

Dow

The Dow Jones remains at a peak in a chart structure including a bearish rising wedge combined with a sell divergence in a threatening structure that awaits the final sell trigger. Rising interest rates cause asset prices to decline and this will impact the Dow if the trend continues. But, the rise has been swift and there are signs that a correction is close. But that will be a correction followed by the main trend again in higher interest rates, stronger dollar, lower gold, and equity and bond markets in a culminating bull market which will morph into a bear market as the year 2021 progresses.

US Dollar

The dollar is weakening in the wake of a reverse sell divergence (red circles) which could see the currency move to a new low. But marginal strength is still holding within the bullish reducing wedge pattern, powered by the consecutive buy divergences (blue circles), which will see the dollar return to its primary strength phase as Treasury yields finally strengthen and equities decline. This is supported by essentially bullish Cots data.

In long term data in the weekly 5 year chart the dollar breakout is just holding, although weakening fast. This may justify reversals in declining US Treasury yields and a gold rally. Once the dollar has a decisive breakout from the bullish reducing wedge pattern it is likely to follow the breakout of 3 years ago on a fractal basis, in substantial gains with concomitant impact on equity and bond declines as well as lower gold prices.

US dollar Cots data, which admittedly is not a short term indicator, is still dollar bullish although the slight dilation (red circles) could be cause for interim dollar weakness before the final strength phase starts in earnest.

EuroDollar

The EuroDollar is strengthening in the wake of a reverse buy divergence (blue circles) which could see further strength. But marginal weakness is still holding within the bearish rising wedge pattern, powered by the consecutive sell divergences (red circles), which will see the EuroDollar return to its primary weakening phase. 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

US Treasury 10 year yield continues to advance as US equities continue to grind out new highs, spurred on by the 50-Day MA (red) crossing up over the 200-Day MA (green) indicating the move towards higher yields is real. However, the sell divergence in the long term data 5 year chart (next chart) indicates a strong correction to lower yields at some point. So, yield still continues to grind up slowly within the confines of the rising channel, but we still need increased yields during the ‘acid test’ when equities are actually declining, which they are not doing yet.

The weekly chart indicates the 10 year yield actually gapped up for a second week running but still the sell divergence signal holds, and this indicates lower yields next. This is in the long term data and yield declines may actually be lengthy. This in turn could promise protracted declines in interest rates and the dollar, and protracted and continued increases in US equities.

Gold

Gold starts a potential rally off the double bottom which has stalled the multi-breakdowns. This could be a strong rally if US Treasury yields start declining, or otherwise mild if not. Otherwise gold is positioned to decline further with support from rising interest rates and the dollar, plus continued bullish Cots data.

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 starts to weaken against a dollar also weakening, in the wake of a dollar/Zar buy divergence. But price remains well within the reducing channel formation which it needs to breach before any sustained Rand weakness, as price drifts sideways towards the triangle vertex-based reversal point which will supply impetus either way.

Hui : Gold Ratio

The HUI / Gold ratio bearish dome holds, but the buy divergence could breakout up to destroy the dome. However, a H&S pattern has developed and any decisive breakdown through the neckline will be bearish in testing the support zone all the way down to the bottom at a ratio of 0.115. The chart continues to look bearish for now, with the promise of lower miner and gold prices to come.

GDX US Gold ETF

GDX has a similar chart with competing buy divergence and H&S pattern that could see either the dome destroyed or severe declines down to the $22/$23 level.


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 continues in a long time coming, with any breakout soon countered by a gold rally.

Silver

Silver is still stronger than gold and the continued non-confirmation implies an end to any precious metal rally potential, being more normal at times of major trend change. Silver therefore seems poised to decline because of this and the bearish Cots data, although still vulnerable (like gold) to the cocktail of impacts in US Treasury yield movement, interest rate change, dollar value, etc. The recent spike in silver interest is probably subsiding.

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 advanced slightly to 65.22, as it continues to drifts sideways to down. But we need more price movement to make more intelligent judgements.

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