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Market Analysis 24 Mar 2021

Mar 24th, 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 will probably lead to increased volatility until main trends continue. Lower US Treasury yields promise a weaker US dollar, higher gold, and extended equity gains, but technically it looks like the reverse could happen. A breakout in the gold / silver ratio promises lower metals which implies a stronger dollar and US equities are in a topping pattern. But higher interest rates are coming, no matter what: Despite world governments need to prevent it.

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 may already have started. Gold is still in a rally but silver is weaker and looks vulnerable, while miners look bearish.

Dow

The Dow Jones turns down slightly from the top as the equity markets show signs of running out of steam. Technically, the Dow remains the same as last week as divergence and the rising wedge continues to threaten decline and trend change waiting to happen. Rising US Treasury yield is set to correct down slightly which may now already have started, and this will provide some relief which should 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 holds and starts to build momentum at the beginning of the dollar strength phase. But this is dependent on US Treasury yield strength and US equity market decline, both of which could interfere with further dollar strength. This is also reflected in the dollar chart as price approaches strong resistance including the 200-Day MA (green). If the US Treasury yield correction is quick and the Dow Jones continues to decline then dollar strength could ultimately develop into a multi-month rally, and more.

Long term data in the weekly 5 year chart supports the bullish dollar breakout which is similar to the breakout 3 years ago and should develop into a strong rally. If this is true, it must be because of a short US Treasury yield correction down as well as continued US equity declines and lower gold prices.

EuroDollar

EuroDollar behaviour supports the strong dollar rally as it holds its breakdown in starting to build weak momentum. Although it too is now at strong support in the 200-Day MA (green).

Long term EuroDollar data in the weekly 5 year chart is also mimicking dollar behaviour in the opposite direction with a successful breakdown of the rising wedge similar to that of 3 years ago, indicating multi-month EuroDollar weakness.  

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 this has not happened 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 sustained yield correction down 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 a stronger 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 reacts down sharply as miners lead gold lower. The ratio has reacted down below both the 200-Day (green) and 50-Day (red) MAs as it moves sideways towards a triangle vertex-based reversal. The chart is again beginning to assume a bearish appearance.

GDX US Gold ETF

GDX reacts down sharply from the H&S neckline (and 200-Day MA (green) as the breakdown holds, and price moves sideways towards a triangle vertex-based reversal. The chart remains bearish and the final H&S target decline remains in the region of $22 / $23.

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This situation applies also to all US miners, and HUI, GDXJ, and XAU are all positioned in likewise charts subject to further breakdowns.

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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. But price has moved up off support as it continues sideways before the next breakout attempt.

Silver

Silver is now decidedly weaker than gold and has a mini-breakdown as it starts to look bearish. As with gold, silver is supported by Treasury yield decline and retarded by dollar advance.

Gold : Silver Ratio

The gold / silver ratio advanced to 68.38 in a breakout. This is the first sign in a while that indicates higher ratios and lower metal prices ahead. Technically, we need to breakout the declining expanding channel trendline.

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