Home > Uncategorized > Market Analysis 13 May 2021

Market Analysis 13 May 2021

May 13th, 2021

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.

Categories: Uncategorized Tags:
Comments are closed.