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Market Analysis 10 Mar 2021

Mar 10th, 2021

Executive summary

The status in US equities remains much the same as last week as divergence and the rising wedge continues to threaten decline waiting to happen. Rising US interest rates are beginning to correct down slightly which will provide some relief and probably extend equity gains further, weaken the dollar, and strengthen the gold rally, but once the main trend resumes, equity and bond markets will morph into a bear market as the year 2021 progresses.

The dollar has a breakout which confirms the start of a strengthening phase which could be multi-month. US Treasury yields continue to move up, but with the potential now for a reversal which has the effect of retarding dollar gains and supporting a gold rally which has started.

Dow

The Dow Jones continues to hold to new highs despite declines in the oscillators which has developed divergence into a compound sell divergence. The status therefore remains the same as last week as divergence and the rising wedge continues to threaten decline waiting to happen. Rising US interest rates are beginning to correct down slightly which will provide some relief and probably extend equity gains further, but once the main trend resumes, equity and bond markets will morph into a bear market as the year 2021 progresses.

US Dollar

The dollar has a breakout from the reducing wedge which confirms the start of a strengthening phase which could be multi-month. But US Treasury yields could be starting a downward correction which will retard dollar gains. Once complete however, the dollar will return to its primary strength phase as Treasury yields finally strengthen and equities decline.

Long term data in the weekly 5 year chart illustrates the bullish breakout which, on a fractal basis, is likely to be similar to the breakout 3 years ago. Despite short term interruptions caused by Treasury yield corrections, the dollar strength phase could be major with corresponding negative impact on equity and bond declines as well as lower gold prices.

EuroDollar

The EuroDollar has a breakdown from the rising wedge, confirming the start of 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 move up in the rising channel, spurred on by the gold cross (green square) indicating the move towards higher yields is real. But, it has now developed sell divergence which creates potential for a reversal which has long since been indicated by long term data in the 5 year chart (next). We still need increased yields during the ‘acid test’ when equities are actually declining, and both are not doing this yet.

Weekly yield has started to turn down in the 5 year chart. This has been prompted for some time now and is finally also signalled in the 12 month chart (previous). Because this is long term weekly data it may indicate the start of a lengthy correction which in turn could promise protracted declines in interest rates and the dollar, as well as continued increases in US equities and gold. Despite the fact it seems unlikely, and even impossible.

The above chart illustrates the negative correlation between US 10 year Treasury yield and the gold price, in a 5 year daily view. Any yield retracement now is likely to cause gold to increase, providing some measure of extent in both cases. Much depends on the extent and timing of any Treasury yield correction which will impact directly on US interest rates, dollar value, equity and bond market behaviour, and gold.

Gold

Gold is starting to rally, and this will be supported by Treasury yield declines and retarded by dollar advances. Some indication of extent is provided by the chart which suggests the gold correction may reach as far up into the region of the H&S neckline. This covers a range from $1670 to $1800 which is a potential 8% gain.

South African Rand

The Rand has started to weaken against the dollar but has corrected down from the top reducing wedge trendline in a region of strong resistance, just below the 200-Day MA (green). Any further dollar strength could propel the Rand into a breakout of the reducing channel which will be additionally bearish the Rand.

Hui : Gold Ratio

The HUI / Gold ratio rises in the wake of the buy divergence as miners lead gold higher in a potential rally. But in the scheme of things price is really only moving sideways towards the triangle apex. The chart has lost its bearish character, as well as any H&S breakdown potential.

GDX US Gold ETF

GDX has started to correct up despite the H&S breakdown which is still active. However, correction potential is increasing and this will start to test resistance soon. The triangle apex is approaching and may develop into a strong reversal point, including the 200-Day MA (green) at about $35. Invalidation of the H&S breakdown will rule out the target decline price at $22/ $23 for now.


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 rally has resulted in price declining from resistance. Dust will now move sideways to down before any further breakout attempt.

Silver

Silver has started to rally and could technically go to a new high. But price, as with gold, is supported by Treasury yield decline and retarded by dollar advance.

Gold : Silver Ratio

The gold / silver ratio advanced slightly to 65.57, as it continues to drifts sideways to down. But we still need more price movement to make more intelligent judgements.

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