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Market Analysis 10 Jun 2021

Jun 10th, 2021 No comments

Executive summary

US equities are beset with lethargy at elevated levels while weakening very slightly, as a prelude to further weakening before yet potential new highs. Threatening sell divergence and rising wedge patterns remain in place.
US Treasury yields are weakening slightly as they take up some of the equity lethargy, with the dollar poised to weaken further to a potential new low. If the Treasury yield decline extends much this will encourage the gold rally to increase and perhaps ignite miners to follow suit. The deteriorating US reverse repo situation will eventually support strengthening Treasury yields and dollar, with weaker equities and lower gold price.

Dow

The Dow Jones weakens slightly at elevated levels while the threatening sell divergence and rising wedge patterns remain in place. But there is still the nagging potential for yet another new high before any serious declines occur, although the index is likely to decline further first.

The Dow short term 3 months chart continues to look bearish with further likely declines to test support towards the 50-Day MA (red), before any further increases to a potential new high.

US Dollar

The US$ index downtrend continues while US equities continue at elevated levels, but the expanding triangle and reducing wedge are bullish patterns. This suggests the dollar is likely to rally strongly later, but probably only after declining to a potential new low first. The set of bearish candles (red circle) will encourage this, and the deteriorating US reverse repo situation will support the dollar rally after that.

EuroDollar

The EuroDollar chart continues to reflect the exact opposite of the dollar chart with a continued uptrend. By contrast the Euro is likely to achieve a new high before the inevitable weakening phase starts which will be supported by the expanding triangle and rising wedge patterns.

South African Rand

The Rand continues to strengthen against the dollar downtrend, and the continued dollar RSI buy divergence has been destroyed in that process, although the MACD buy divergence remains evident. The continued dollar weakness ensures further Rand strength but a Rand weakness cycle will start soon because it’s strength has been disproportionate compared to other currencies such as the Aussie dollar and British pound for example.

US Treasuries

US Treasury 10 year yield has a breakdown which probably will ensure further countertrend yield weakness before the strength cycle continues. This mild Treasury price strength is occurring at a time of mild US equity lethargy, and will all be reversed once equities resume an advance to yet another new high. This countertrend window of yield decline will encourage gold to extent its rally. The deteriorating US reverse repo situation will support a strengthening bias (as does the Gold Cross (green square)).

If Treasury yields continue to weaken slightly this will extend the gold rally, due to the inverse correlation between the two.

Gold

The rally in gold has become indecisive, and could break either way dependent mainly on Treasury yield movement. Gold is not being supported by US miners and this could force the gold price lower, as does the continuing silver non-confirmation and the deteriorating US repo situation. Gold needs to breakout or risk activating the bear flag.

Hui : Gold Ratio

The HUI / Gold ratio is weaker than the gold price itself and is also indecisive as to breakout or breakdown. The ratio also needs to breakout or risk activating the bear flag.

GDX US Gold ETF

GDX is similar to the HUI / Gold ratio, although not quite as bearish. It is also indecisive as to breakout or breakdown, and also needs to breakout or risk activating the bear flag.

GDX Junior : GDX Ratio

The GDXJ:GDX ratio breakout is holding, indicating junior miners are stronger than major miners. This also indicates strength ahead, and is the one indication (amongst all others) doing so.


The XAU US Gold and Silver Miners Index and the NUGT US Miners Bull Index are both reflecting the identical same patterns as the other metals and miners.


Silver

Silver still exhibits non-confirmation with gold, which is bearish precious metals. It is also impacted similarly to gold and will rise if Treasury yields decline.

Gold : Silver Ratio

The gold / silver ratio breakout is holding (declines ahead) but is largely still relatively neutral. We need to see move chart development to make constructive projections.

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Market Analysis 3 Jun 2021

Jun 3rd, 2021 No comments

Executive summary

US equities continue at elevated levels while threatening sell divergence and rising wedge patterns remain. But there is still the nagging potential for yet another new high before any serious declines occur, and both of these are likely given all the other factors impacting markets.
At the moment it may be that the liquidity fright in the US banking system in Dec 2015 may be happening again, and we need to consider that before evaluating US interest rates, the dollar, and gold. US Treasury 10 year yield is moving sideways could move either way in the short term which will add some volatility to markets, but the deteriorating US reverse repo situation will support a strengthening bias.


The dollar downtrend continues although it is likely to rally strongly later, but probably only after declining to a potential new low first. The deteriorating US reverse repo situation will support the dollar rally after that. The gold breakout is holding although not supported strongly by the various US miner charts. It continues to be threatened by Treasury yield strength and the silver non-confirmation.

Dow

The Dow Jones continues at elevated levels while the threatening sell divergence and rising wedge patterns remain. But there is still the nagging potential for yet another new high before any serious declines occur, and both of these are likely given all the other factors impacting markets.

The Dow short term 3 months chart however continues to look more bearish with the breakdown from the short term rising wedge still holding good, in the wake of the sell divergence and appearance of a set of bearish ending candles. This has the potential to drop the index to the top of the support zone before any further increases to a possible new high.

US Reverse Repo situation
As a precursor to evaluating the dollar and gold it is perhaps a good idea to revisit the US reverse repo situation which shook markets in Dec 2015. At that time the US Federal Reserve started tapering asset purchases because of the liquidity fright it created in the banking system, and it appears this is happening again.

In Dec 2015 the level of overnight reverse repurchase agreements in securities sold reached $475bn (green) and it has now exceeded that level at $485bn. Tapering after Dec 2015 caused the effective Federal funds rate to increase from just above zero to nearly 2.5% (red). Tapering and rate increases are dollar friendly and hostile towards gold. Tapering did eventually reverse and the funds rate did eventually decline back to nearly zero, but in the short term this situation is likely to boost the dollar and reduce the gold price.

US Dollar

The US$ index downtrend continues while US equities continue at elevated levels, but the expanding triangle and reducing wedge are bullish patterns. This suggests the dollar is likely to rally strongly later, but probably only after declining to a potential new low first. A set of bearish candles have emerged as ending candles to encourage this, and the deteriorating US reverse repo situation will support the dollar rally after that.

EuroDollar

The EuroDollar chart reflects the exact opposite of the dollar chart with a continued uptrend and a set of bullish ending candles to support further gains. By contrast the Euro is likely to achieve a new high before the inevitable weakening phase starts which will be supported by the expanding triangle and rising wedge patterns.

US Treasuries

US Treasury 10 year yield continues sideways as US equities remain elevated. The chart looks indecisive and could move either way in the short term which will add some volatility to markets, but the deteriorating US reverse repo situation will support a strengthening bias (as does the Gold Cross (green square)). Progress in the ACID test still needs to be monitored.

If Treasury yields continue to weaken slightly this will extend the gold rally, due to the inverse correlation between the two. But of course the reverse is also true.

Gold

The gold breakout is holding although not supported strongly by the various US miner charts. It continues to be threatened by Treasury yield strength and the silver non-confirmation. Any breakdown from the rising wedge will move towards activation of the potential bear flag. Weakening in US Treasury yields will extend the gold rally, which is possible, and the deteriorating US reverse repo situation will depress the gold price. An increase in US equities will catapult the Bitcoin price which will assist gold weakness.


Money is being pumped into world monetary systems at unprecedented pace, even with equities well beyond all-time highs. The world has been in a catastrophic pandemic for more than a year and economic systems have been hit hard. And yet gold, the monarch of safe havens, has not managed to go above 2011 highs, let alone soar above. The gold market is simply not ready yet without declining significantly first.
South African Rand

The Rand continues to strengthen despite the continued dollar buy divergence. In fact the continued dollar weakness has destroyed the RSI divergence (MACD divergence is still evident), and there is further Rand strength ahead because of further dollar weakness.

Hui : Gold Ratio

The HUI / Gold ratio breakouts are weakening with the wedge breakout invalidated. The chart is not decisive like the gold chart itself.

GDX US Gold ETF

The GDX breakouts are stronger but also weakening and not as decisive as gold itself. The chart needs to break up otherwise it will start testing support levels and eventually activate the potential bear flag.

GDX Junior : GDX Ratio

The GDXJ:GDX ratio has a breakout, indicating junior miners are strengthening faster than GDX miners. This is the one indication (amongst all others) suggesting strength ahead.

XAU US Gold and Silver Miners Index

The combined gold and silver miners chart breakout is holding, just. But like the others it needs to break up otherwise it will start testing support levels and eventually activate the potential bear flag.

NUGT US Miners Bull Index

NUGT reflects the current gold miners’ strength but all the same impact factors apply. It has developed a pennant which indicates continued strength.

Silver

The silver chart is still exhibits 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 breakout is holding (declines ahead) but is largely still relatively neutral. We need to see move chart development to make constructive projections.

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