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Market Analysis 22 Apr 2021

Apr 22nd, 2021

Executive summary

The Dow Jones remains elevated and the bearish patterns in the sell divergence and rising wedge remain active, as the high levels of investor optimism and euphoria remain extreme. This will probably still continue for a short yet before finally topping out. 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 continue to correct down as US equities remain elevated, although an end to the correction appears to be soon. Higher interest rates are coming, no matter what. The dollar correction down and the EuroDollar correction up are close to completion. Gold and silver rallies might have a short way to go yet and US miners are providing slightly mixed signals, with prospects for metals and miners likely to start significant declines soon.

Dow

The Dow Jones remains elevated and the bearish patterns in the sell divergence and rising wedge remain active, as the high levels of investor optimism and euphoria remain extreme. This will probably still continue for a short yet before finally topping out.

US Dollar

The corrective reversal in the US$ index is beginning to show signs of completion (black circle) as the dollar prepares for the next rally. The succession of higher highs and higher lows is still intact, and this is corroborated by activity in competing currencies, especially the Euro. This is also dependent largely on the timing of US Treasury yield correction and US equity market top, both of which will support the start of a dollar rally.

Long term data in the weekly 5 year chart indicates that the dollar reversal is still incomplete and the comparison with the breakout 3 years ago still holds, but tenuously so.

EuroDollar

The corrective reversal in the EuroDollar is also beginning to show signs of completion (black circle) as the Euro prepares for the next decline. The succession of lower highs and lower lows is still intact, by way of continuing to corroborate expected dollar movements.

Long term data in the weekly 5 year chart indicates that the EuroDollar reversal is still incomplete and the comparison with the breakout 3 years ago still holds, but tenuously so.

US Treasuries

US Treasury 10 year yield continues to correct down in the wake of the sell divergence, as US equities remain elevated. We still need increased yields during the ‘acid test’ when equities are actually declining, and although this has not happened yet it could happen at any time, when equities and the bond market start declining at the same time. It appears the Treasury yield correction may not last much longer.

The above chart illustrates the negative correlation between US 10 year Treasury yield and the gold price, in a 5 year daily view. Just as the Treasury yield correction down is causing the gold rally, so also will the end of the yield correction cause the end of the gold rally and resume the start of gold declines.

Gold

The Gold rally is close to completion as both the Treasury yield correction and dollar correction appear to be close to completion. The chart illustrates the potential gold correction range and how close it is to completion. The next decline phase will threaten activation of the next H&S neckline 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 is close to the start of the next weakening phase as the dollar is close to resuming strength. This is supported in the chart by the creation of a dollar buy divergence as price approaches a triangle vertex-based reversal.

Hui : Gold Ratio

The HUI / Gold ratio breaks higher, but not through the declining channel, as it moves up the rising wedge towards the triangle vertex-based reversal. But the MAs continue to provide strong support.

GDX US Gold ETF

GDX has a breakout as it invalidates the earlier H&S breakdown, but has also created a mild sell divergence promising lower prices ahead. GDX is the only US miner vehicle with a breakout whilst all the others have not, as indicated on the next chart.

Other US miners

Other US miners have not achieved breakouts, including the GDXJ (Juniors).

Dust US Miners Bear Index

Dust declines continue as the gold rally continues. The chart is now reaching regions of strong support which is another indication of gold being close to the end of its rally. The opposite influence is indicated in the next chart NUGT which is a US miners bull index.

NUGT US Miners Bull Index

NUGT has a breakout (enjoying the gold rally) but in the process has developed a reverse sell divergence, which promises an end to the gold rally.

Silver

The silver rally should go higher but is limited because the dollar and Treasury yield corrections are close to completion.

Gold : Silver Ratio

The gold / silver ratio breakout is invalidated with a slightly lower close at 67.49. This becomes somewhat indecisive as the ratio also approaches the triangle apex for a break either way.

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