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Market Analysis 17 Mar 2021

Mar 17th, 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 set to correct down slightly and this is leading to conflicting signals in the markets which may be aggravated further by US Fed pronouncements today, as this is FOMC week in the US. This could all add to increased volatility in probably extending equity gains further, weakening the dollar, and strengthening the gold rally. But once the main US Treasury trend resumes, equity and bond markets will be under increased bearish pressure as the year 2021 progresses.

The dollar breakout and the EuroDollar breakdown are both holding in confirming the start of the dollar 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 edge up to new highs despite the sell divergence signal holding. The status therefore remains the same as last week as divergence and the rising wedge continues to threaten decline and trend change waiting to happen. Rising US interest rates are set to correct down slightly which will provide some relief and probably extend equity gains further, but once the main US Treasury yield trend resumes, equity and bond markets will morph into a bear market as the year 2021 progresses. Much depends on the extent of the interest rate correction.

US Dollar

The dollar breakout is holding in confirming the start of the dollar strength phase. This could ultimately develop into a multi-month rally but momentum is dependent on the pending US Treasury yield correction, in timing and extent. Declining yield will retard dollar gains. But once complete, 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 dollar breakout which, on a fractal basis, is not only likely to be similar to the breakout 3 years ago but in fact looks nearly identical. Despite short term interruptions caused by the Treasury yield correction, 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 breakdown is holding in confirming the start of the weakening phase, and also corroborating dollar strength. This could ultimately develop into a multi-month decline but, like the dollar, is dependent on the pending US Treasury yield correction, in timing and extent. Declining yield will retard Euro declines. But once complete, the EuroDollar will return to its primary weakening phase as US Treasury yields finally strengthen and equities decline.

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 correction now is likely to provide energy for the gold rally to continue. Much depends on the extent and timing of any US 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 further by US 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 is strengthening against the dollar, in correcting down from the top of the reducing channel. There is a region of strong dollar resistance there including the 200-Day MA (green). Further dollar strength could propel the Rand into a breakout of the reducing channel which will be additionally bearish the Rand, but much depends on the pending US Treasury correction as to whether this happens sooner or later.

Hui : Gold Ratio

The HUI / Gold ratio rises in the wake of the buy divergence as miners lead gold higher in a potential rally that has also deactivated the earlier H&S formation. But the ratio is beginning to react down from a region of strong resistance, including the 200-Day MA (green). A new potential H&S pattern could be forming lower down at the bottom of the support zone, as the ratio moves sideways towards the triangle apex from which a break is inevitable, either up or down.

GDX US Gold ETF

GDX has corrected up to the H&S neckline. From here price will either invalidate the H&S or confirm the breakdown, as price moves sideways towards the triangle apex 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 but is doing so weaker than gold, for now. 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 66.57, as it continues to drift sideways to up. But we still need more price movement to make more intelligent judgements.

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