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Market Analysis 20 May 2021

May 20th, 2021 No comments

Executive summary

US equities are starting to decline from elevated levels in the wake of the bearish patterns in sell divergence and rising wedge. Despite this, investor optimism and euphoria appears to not be affected yet and the current market status will probably still continue for a short yet before finally topping out. An early sign of change is the collapse of the crypto market.

US Treasury 10 year yield is starting to resume an advance as US equities start to decline, as yield continues to work higher slowly. This therefore means the bond market is finally moving in the same direction as the equity market, although still tentatively, and the ACID test is still in progress.

The dollar correction down is still incomplete and is likely to weaken further despite any short term strength. Gold and miners continue to rally with breakouts although there are extenuating circumstances indicating that this may be false. These include Treasury yield behaviour, crypto market collapse, and silver’s continuing non-confirmation.

Dow

The Dow Jones starts to test support as the top pattern develops potential to decline further, in the wake of continuing compound sell divergence. The threatening bearish rising wedge formation still remains intact, but barely so.

The Dow 3 months chart however continues to look more bearish with the breakdown from the short term rising wedge holding good, in the wake of the sell divergence. A further breakdown should drop the index to the bottom of the indicated support zone to the region of 32000. However, activity yesterday ended on a bullish candle which indicates more gains in the short term first. The 50-Day MA (red) is providing support.

US Dollar

The US$ index enjoyed a slight recovery in its downtrend as US equities continue declines. But the dollar is likely to continue down to a new low before the bullish patterns in the expanding triangle and reducing wedge impact the dollar to the next strengthening phase. The chart structure now also includes a sequence of lower lows and lower highs.

EuroDollar

The EuroDollar chart reflects the exact opposite of the dollar chart, with a slight weakening in its uptrend. But the Euro is likely to continue up to a new high before the bearish patterns in the expanding triangle and rising wedge impact the Euro to the next weakening phase. The chart structure now also includes a sequence of higher lows and higher highs.

US Treasuries

US Treasury 10 year yield is starting to resume an advance as US equities start to decline, as the mini-break continues to work higher slowly. This therefore means the bond market is finally moving in the same direction as the equity market, although still tentatively, and the ACID test is still in progress.

If Treasury yields continue to advance it will impact gold negatively, due to the inverse correlation between the two. If this starts to occur energetically then gold declines will be significant, and it would appear as if we are on the cusp of this happening.

Gold

Gold has a breakout on high volume with US miners starting to show some strength also. But the gold market is threatened by other factors which suggest the breakout may be false and short-lived. Treasury yields are starting to advance again, and there is a continuing non-confirmation of silver against gold which has a traditionally retarding impact on precious metals’ strength. A concomitant impact may be the collapse of the crypto market with Bitcoin down 50% in a month. The gold spike may be due to crypto investors (and speculators) switching into gold, which probably will not last.

The collapse of Bitcoin since mid-April has seen gold gain most of it’s spike during the same timeframe, especially the last 10 days.

South African Rand

There is slight Rand weakness in it’s overall strengthening against the dollar as the dollar compound buy divergence continues. This all promises eventual Rand weakness as the reducing patterns breakout, but with short term dollar weakness still to come the Rand is likely to continue to stay strong.

Hui : Gold Ratio

There is a HUI / Gold ratio breakout after the gold breakout which is holding for now, but weakening. The breakout may be false as with the gold breakout, in which case the rising wedge will be threatened and begin to act as a bear flag.

GDX US Gold ETF

GDX also has a breakout after the gold breakout which is holding for now, but weakening. It will invalidate if the gold breakout is false, and technically it needs to break up otherwise it will test support levels, in which case the rising wedge will be threatened and begin to act as a bear flag.

XAU US Gold and Silver Miners Index

The combined gold and silver miners chart breakout creates a new high and is therefore more bullish than the other miners’ charts. But all the impact factors nevertheless apply here too, and if the gold price is false the breakout will invalidate with lower prices to come.

NUGT US Miners Bull Index

NUGT reflects the current gold strength but all the same impact factors apply.

Silver

The silver chart illustrates the continuing non-confirmation with gold, which is bearish precious metals. On balance, lower prices lie ahead with identical impact factors as for gold.

Gold : Silver Ratio

The gold / silver ratio is neutral despite a slightly higher close, but a triangle vertex-based reversal approaches with a break either way to follow. This is quite surprising given the extent of gold and miners breakouts, which reinforce the argument that precious metals are not going any higher.

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Market Analysis 13 May 2021

May 13th, 2021 No comments

Executive summary

The Dow Jones starts to decline from elevated levels in the wake of the bearish patterns in sell divergence and rising wedge. Despite this, high levels of investor optimism and euphoria remain with as yet no sign of panic. This therefore may 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 10 year yield starts to resume advancing as US equities start to decline. This is a major change to the pattern because it means the bond market is finally moving in the same direction as the equity market. The so-called ACID test is therefore in progress with the bond market declining together with equities. This is a signal of genuine bear market conditions. The dollar correction down is still incomplete and is likely to weaken further despite any short term strength. Gold and miners continue to rally and still have a short window of bullish potential followed by declines, very much dependent on US Treasury yield behaviour.

Dow

The Dow Jones starts to decline from elevated levels in the wake of sell divergence which has now developed into compound divergence. The decline dropped down to the bottom rising wedge which still remains intact.

The Dow 3 months chart however indicates a breakdown of the short term rising wedge as well as a bearish ‘Shooting Star’ candle at the peak. This is a bearish chart which promises more declines.

US Dollar

There is a slight recovery in the US$ index downtrend as US equities start to decline. The potential is there for more short term dollar strength as equities continue declines, but the dollar chart has changed and now indicates further declines thereafter. The succession of higher highs and higher lows is broken and the whole essence of the US market has changed with respect to Treasury yields, interest rates, and equity behaviour, and support levels will be tested soon.

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 is no longer similar. Also, the earlier breakout has been invalidated, and further dollar weakness is likely to test support levels.

EuroDollar

There is a slight weakening in the EuroDollar uptrend in a chart that reflects the exact opposite of the dollar chart. There is perhaps more potential for short term Euro weakness, but the chart has changed and now indicates further strength which will test resistance levels soon.

US Treasuries

US Treasury 10 year yield starts to resume advancing as US equities start to decline. This is a major change to the pattern because it means the bond market is finally moving in the same direction as the equity market. The so-called ACID test is therefore in progress with the bond market declining together with equities. This is a signal of genuine bear market conditions.

Negative correlation between US 10 year Treasury yield and the gold price is a historical fact, and once the US Treasury yield uptrend resumes it will also trigger significant gold declines.

Gold

The corrective gold rally continues in a rising wedge formation which is approaching a key resistance region (black circle). This region connects the downsloping reducing channel top line with the upsloping rising wedge, at the same time as the US Treasury yields appear to be resuming yield increases. There is therefore a short window of bullish gold potential followed by declines, or a breakout through the key resistance region with strong gold gains and presumably continued weakening Treasury yields.

The longer term 5 year chart indicates that a gold breakout through key resistance would trigger a bull flag whilst failure to break up would soon start testing support levels. Note the buy signal in the MACD at the bottom. However, the latter is the more likely after some short term gold strength.

South African Rand

There is slight Rand weakness in overall strengthening as the dollar buy divergence develops into compound divergence. This is all to develop into short term Rand weakness, medium term Rand strength, and eventual Rand weakness as the reducing patterns finally break up into dollar strength.

Hui : Gold Ratio

The HUI / Gold ratio rally is gradual, but could energise massively if the gold bull flag triggers. As with gold, there is a key resistance region just above the current price. However, the rising wedge is likely to break to the downside eventually.

GDX US Gold ETF

The GDX rally in progress is more bullish than the HuiGold rally, and the breakout is holding. This could also energise massively in the short term, but is likely to break down eventually through what could be a developing bear flag.

XAU US Gold and Silver Miners Index

The XAU combines gold and silver miners and illustrates a strong rally in progress. This too is likely to energise up in the short term but reverse bearishly in the longer term

Dust US Miners Bear Index

The sharp declines in Dust reflect the current gold strength with eventual breakouts as the gold rally dissipates.

NUGT US Miners Bull Index

NUGT reflects the current gold strength and should test resistance in the short term.

Silver

The silver breakout moves higher but is limited by potential Treasury yield strength.

Gold : Silver Ratio

The gold / silver ratio is neutral despite a slightly lower close, but a triangle vertex-based reversal approaches with a break either way to follow.

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