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Market Analysis 3 Mar 2021

Mar 3rd, 2021

Executive summary

The Dow Jones remains close to a peak in a threatening structure that is much the same as last week. But rising US Treasury yields are probably due a correction which will provide some relief in extending equity gains further, weaken the dollar, and initiate a gold rally. But that will be a correction followed by the main trend again afterwards including 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 trending sideways which could see the currency move to a new low during the US Treasury correction, followed by a return to its primary strength phase as Treasury yields strengthen again and equities decline. Gold declines are close to a reversal.

Dow

The Dow Jones remains close to a peak but is nibbling at a breakdown through the rising wedge, while the sell divergence signal remains active. The index actually broke below the rising wedge but bounced up to invalidate the break. Otherwise, the threatening structure remains the same as last week, awaiting the final sell trigger. Rising US interest rates are probably due a correction which will provide some relief and extend equity gains further. Once the main trend resumes, equity and bond markets will morph into a bear market as the year 2021 progresses.

US Dollar

The dollar is trending sideways but in the wake of a reverse sell divergence (red circles) could see the currency move to a new low during the US Treasury correction. Once complete, the dollar will return to its primary strength phase as Treasury yields finally strengthen and equities decline. This is supported by essentially bullish Cots data (not shown).

Long term data in the weekly 5 year chart indicates more dollar weakness before the bullish wedge breakout, similar to the breakout of 3 years ago on a fractal basis. This will lead to substantial gains with concomitant impact on equity and bond declines as well as lower gold prices.

EuroDollar

The EuroDollar is trending sideways but in the wake of a reverse buy divergence (blue circles) could see the currency move to a new high during the US Treasury correction. Once complete, the Euro will return to its primary weakness phase as US Treasury yields and the US dollar strengthen. The Euro is a follower not a leader, and will be driven inversely by the impacts driving the dollar.

US Treasuries

US Treasury 10 year yield continues to advance in the rising channel, spurred on by the gold cross (green square) indicating the move towards higher yields is real. However, it is starting to take a breather as US equities take a breather. Also, the sell divergence in the long term data 5 year chart (next chart) indicates a strong correction to lower yields at some point, and this might be now. We still need increased yields during the ‘acid test’ when equities are actually declining, and both are not doing this yet.

The weekly chart indicates the 10 year yield reverse sell divergence signal indicating a correction to lower yields. Yield has actually started to move down already and this might be the start of the correction which could be lengthy because this is weekly long term data. This in turn could promise protracted declines in interest rates and the dollar, and protracted and continued increases in US equities.

Gold

Gold declines in multi-breakdowns including activation of the H&S which theoretically could jettison price by the height of the head down to base support at $1450. But gold is well into the support zone and could be close to a correction as it nears $1670. Also, US Treasury yields are starting to decline and this could trigger a weaker dollar and stronger gold. Continued bearish Cots data supports lower gold and any correction therefore might be shortlived.

Gold Cots data indicates a slight narrowing of the dilation which proportionately represents the gold declines to date. The data supports further gold declines, with or without any correction.

South African Rand

The Rand has started to weaken against the dollar in the wake of the dollar 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 bearish dome holds as the H&S activates and then invalidates, as the ratio rises in the wake of the buy divergence. This indicates a sideways move with the US miners not really more bearish than gold itself, despite a more bearish GDX in the next chart. The chart retains a bearish character, but if a gold correction up is to be expected soon, as seems likely, then the dome structure might be threatened. Any decisive break down is obviously bearish US miners.

GDX US Gold ETF

GDX has a more bearish chart in that the H&S has activated and is holding within the bearish dome. Technically, this presumes price could jettison by the height of the head down to the level of $23 but, as with gold itself, is probably close to a correction up first.


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, and the gold decline has resulted in only a tepid breakout attempt that has met resistance. As gold is close to a countertrend rally it seems probable that Dust will now move sideways to down before any further breakout attempt.

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 bearish Cots data, but still vulnerable (like gold) to the cocktail of impacts in US Treasury yield movement, interest rate change, dollar value, etc., which suggests a silver correction up next.
Pic Silver Cots 3y

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 slightly to 64.50, as it continues to drifts sideways to down. But we need more price movement to make more intelligent judgements.

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