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Market Analysis 8 Apr 2021

Apr 8th, 2021

Executive summary

The Dow Jones remains elevated as the bearish patterns in the sell divergence and rising wedge remain active. This dichotomy is also evident in the US equity market structure itself with increasingly negative breadth and volume, resulting in the slowest day on Wall Street yesterday (Wed), all against continuing higher prices. Despite this negative trend, prices could still go higher before finally topping out, as the continued titanic struggle to keep US markets elevated continues. We remain at the forefront of a long-term decline as the effect of numerous impacts continue to bore in and eventually collapse the structure.

US Treasury yields turn down slightly as US equities remain elevated, and may or may not correct more aggressively in the short term. But higher interest rates are coming, no matter what. The dollar breakout and the EuroDollar breakdown are both building momentum after corrective reversals which look close to completion. The Gold and silver rallies have faded, despite current reversals, and both metals and miners look ready for likely declines ahead.

Dow

The Dow Jones remains elevated as the bearish patterns in the sell divergence and rising wedge remain active. This dichotomy is also evident in the US equity market structure itself with increasingly negative breadth and volume, resulting in the slowest day on Wall Street yesterday (Wed), all against continuing higher prices. Despite this negative trend, prices could still go higher before finally topping out.

US Dollar

The corrective reversal in the US$ index is close to completion as the dollar prepares for the next rally up-leg. The succession of higher highs and higher lows continues intact, and this is corroborated by activity in competing currencies, especially the Euro. This is also dependent largely on the potential US Treasury yield correction and US equity market decline, both of which could interfere with further dollar strength.

Long term data in the weekly 5 year chart supports the bullish dollar breakout as momentum builds, despite the corrective reversal still in process. Similarity with the breakout 3 years ago provides good evidence of dollar strength soon.

EuroDollar

The corrective reversal in the EuroDollar is close to completion as the succession of lower highs and lower lows continues in preparation for the next decline.

Long term data in the weekly 5 year chart supports the bearish Euro as downwards momentum builds, despite the corrective reversal still in process. Also, similarity with the breakdown 3 years ago provides good evidence of continued EuroDollar weakness.

US Treasuries

US Treasury 10 year yield turns down slightly in the wake of the sell divergence, as US equities remain elevated. There is little activity in yield at the moment, which may or may not correct more aggressively in the short term, spurred on by the gold cross (green square) indicating the move towards higher yields is real. The sell divergence is still active though and this indicates a potential for a reversal which has long since been indicated by long term data in the 5 year chart (not shown). We still need increased yields during the ‘acid test’ when equities are actually declining, and this has not happened yet.

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 a stronger gold rally neither of which is happening yet. 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

The Gold rally fades into a bearish decline below the H&S breakdown which indicates potential to drop all the way to about $1450. The potential corrective reversal in US Treasury yield could strengthen the gold rally which has already reversed back up towards $1750 in near completion of its potential correction range. Failing this, further declines are likely after that, because the H&S breakdown has held and the next H&S threatens activation below at about $1670.

A quick look at the longer term 5 year chart indicates that gold could soon test support below $1670 all the way down to the $1450 level.

South African Rand

The Rand continues to strengthen against the dollar but has reached a region of strong dollar support, and is now close to the start of a weakening phase as the dollar is close to the start of resuming strength.

Hui : Gold Ratio

The HUI / Gold ratio is moving sideways into an approaching triangle vertex-based reversal. Indications for further sideways movement in the short term is strong followed by further declines thereafter. The MAs appear to be providing strong resistance.

GDX US Gold ETF

The GDX is moving sideways as the H&S breakdown holds with the ultimate final target decline price in the region of $22 / $23. Price is moving towards the approaching triangle vertex-based reversal, and the chart remains bearish.


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 price is moving sideways to down towards the approaching triangle vertex-based reversal. The chart remains bullish.

Silver

The silver rally, like gold, fades into a bearish decline, but the potential corrective reversal in US Treasury yield could strengthen the silver rally which has already reversed back up towards the diagonal resistance trendline. But the breakdown is holding and if the trendline holds then further declines will test support soon.

Gold : Silver Ratio

The gold / silver ratio breakout is holding despite a slightly lower close at 68.98. This therefore still indicates higher ratios and lower metals ahead.

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