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Market Analysis 22 Jul 2021

Jul 22nd, 2021 No comments

Executive summary

The Dow Jones continues to develop a broad topping pattern with a prominent double top at the apex as it edges toward a key break level at 35100 which is a significant trigger point either way. Strong declines on Monday has seen a strong rally since including strong breadth. This all means it probably is going to breakout to new all-time highs once the key break level is breached, but there are powerful pent-up energies building which will cause havoc once the US market finally tops out, because 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 has perhaps started a strengthening phase prompted by the US equity rally since Monday’s decline, which means once again, failure of the acid test with US bonds and equities moving in opposite direction. This also means US markets are not ready to decline significantly with equities and bonds declining together. If this is the start of Treasury yield strengthening it also means the start of weaker gold, all supported by the deteriorating US reverse repo situation which supports a strengthening yield bias and weak gold price.


US$ indecision persists but indications now are for the start of some dollar weakness, supported by some Euro strength. Gold is looking slightly mixed with a negative bias, and if US Treasury yields are in fact starting to strengthen then gold will weaken.

Dow

The Dow Jones breakdown through the rising wedge has invalidated with a strong rally including strong breadth in all the ratios such as advance / decline and volume. It continues to develop a broad topping pattern with a prominent double top at the apex as it edges toward a key break level at 35100 which is a significant trigger point either way. The Dow Jones is probably going to breakout to new all-time highs once the key break level is breached, but the compound sell divergence formation is extending further into what now exceeds 11 months. This is developing powerful pent-up energy which will cause havoc once the US market finally tops out.

The Dow short term 3 months chart indicates the approach to the key break level which will either propel the index to new all-time highs or a breakdown from a significant top. The former is the more likely at the moment.

US Dollar

The US$ index indecision persists but it has developed sell divergence in the process of a mini-break from the expanding triangle which has nearly invalidated. The indicators are therefore suggesting a dollar weakness phase is about to start. The MACD sell signal is procrastinating and this may finally unravel into an actual sell signal. The weak phase will also trigger the bear flag lying in wait.

EuroDollar

The EuroDollar is also developing indecision as its mini-breakdown also nearly invalidates. But the indicators are suggesting a reversal up to start soon which will finally trigger the procrastinating MACD buy signal as well as creating the developing buy divergence.

South African Rand

The Rand bias is to weakness but this is likely to reverse to strength (and dollar weakness) soon. The breakouts region (black circle) is likely to clarify soon, probably with a dollar breakdown through the bear flag and rising wedge, which will again bring activity back within the overall down-sloping reducing channel formation (dollar weakness / Rand strength).

US Treasuries

US Treasury 10 year yield reversed up to invalidate the declining channel breakdown. This was prompted by the US equity rally since Monday’s decline, which means once again, failure of the acid test with US bonds and equities moving in opposite direction. This also means US markets are not ready to decline significantly with equities and bonds declining together. If this is the start of Treasury yield strengthening, as indicated by the gold cross on the chart (green square), it also means the start of weaker gold, all supported by the deteriorating US reverse repo situation which supports a strengthening yield bias and weak gold price.

As Treasury yields turn up gold should decline, in accord with the historical inverse correlation of the two. This also means that once yield starts to strengthen gold will start to weaken, and this began to happen this week.

Gold

Technically, the Gold breakout is holding for now with the bull flag activation, buy divergence, and the MACD buy signal promising yet higher values. But this is threatened by stronger Treasury yields.

Hui : Gold Ratio

The gold breakout has failed to find real support from miners. Technically, the HUI / Gold ratio has developed buy divergence and the MACD buy signal procrastinates. So, more is required before the bull flag might trigger.

GDX US Gold ETF

The GDX breakout of last week has faded but in the process has created buy divergence which probably will amount to very little. The MACD buy signal is also procrastinating.

Dust US miners bear index

The Dust chart reflects a geared inverse situation of that of US miners, nearly exactly. Faded breakdown, sell divergence, MACD sell signal procrastination.

Silver

The Silver bullish triangle has a breakdown which has nearly invalidated. But the chart now looks bearish and the main driver is US Treasury yield potentially turning to strength.

Gold : Silver Ratio

The gold / silver ratio has a breakout which has nearly invalidated. But the week closed higher at 71.41 which indicates weaker metal prices ahead.

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Market Analysis 15 Jul 2021

Jul 15th, 2021 No comments

Executive summary

The Dow Jones has increased to the previous high point achieved 3 months ago to create a prominent double top at what is now a key break level. This is a significant trigger point which could break either way. But a breakout through the double top will propel the index to high levels next. The Dow remains in a non-conformance with the S+P 500 and Nasdaq which have been achieving new highs, which is bearish, all in a US market that has reached historic levels of optimism and narrow width in negative advance / decline and negative volume ratios. This is all compatible with a rally at or near completion. On balance it appears a strong reversal decline soon is forecast, and whether this leads to a short or long term decline is still to be seen.

Whilst US Treasury 10 year yield may next strengthen the correction down continues for now, as Treasuries hold up and equities hold up. This means the acid test is holding up with bonds and equities moving in the same direction, but in rising mode. Also, it is worthy noting that current yield weakness is supporting the gold price which the historical inverse correlation of the two indicates it should do.

The US$ has consolidated over the past 4 weeks in a region of indecision that could break up or down. Present bias indicates a likely decrease in value supported by the dollar chart structure as well as that of the EuroDollar. Gold is looking positive in the short term, supported by the miners now plus US Treasury and dollar short term prospects.

Dow

The Dow Jones has increased to the previous high point achieved 3 months ago to create a prominent double top at what is now a key break level. This is a significant trigger point which could break either way. This is all compatible with a rally at or near completion. On balance it appears a strong reversal decline soon is forecast, and whether this leads to a short or long term decline is still to be seen.

The Dow short term 3 months chart indicates 2 mini-breakouts to create a significant double top in a chart structure with strong support and no resistance. A decisive breakout of the key break level will propel the index to new highs, but the double top could have the reverse effect.

US Dollar

The US$ index has consolidated price over the past 4 weeks in a region of indecision (black circle) that could break either way. But the chart structure bias indicates price in a bear flag that could likely breakdown as well as a breakdown from the overall expanding triangle. There is also a tenuous sell divergence signal emerging (not shown) as well as a sell signal in the MACD plus a buy signal in the EuroDollar (next chart), all of which are likely to trigger the vertex-based reversal into a breakdown.

EuroDollar

The EuroDollar breakdown persists but a buy divergence has developed plus a buy signal in the MACD have the indicators suggesting a Euro reversal gaining momentum into a potential bull flag breakout, and consequent lower dollar.

South African Rand

The Rand has a breakout to weakness (inner black circle) with the declining channel breakout holding whilst the rising wedge breakout has invalidated. But dollar indecision (larger black circle) has muddied the water and potential dollar weakness will reverse this trend and strengthen the Rand, to bring activity back within the overall down-sloping reducing channel formation.

US Treasuries

Whilst US Treasury 10 year yield may next strengthen the correction down continues for now, as Treasuries hold up and equities hold up. This means the acid test is holding up with bonds and equities moving in the same direction, but in rising mode. Also, it is worthy noting that current yield weakness is supporting the gold price which the historical inverse correlation of the two indicates it should do. The deteriorating US reverse repo situation will support a strengthening yield bias and weak gold price, which of course happens next (only a matter of time).

Treasury yields continue to weaken slightly and gold is starting to strengthen slightly, as it should do in accord with the historical inverse correlation of the two. This also means that once yield starts to strengthen gold will start to weaken, and this might be quite soon.

Gold

The Gold breakout is holding with yet higher prices after the bull flag activation and weak Treasury yield, plus the RSI buy divergence. Miners are also beginning to turn up in sympathy, but all of this may be short-lived despite a somewhat bullish chart formation plus a MACD buy signal.

Hui : Gold Ratio

The gold breakout is starting to find support from the miners and the ratio has developed a buy divergence which should increase in the next period, as it is already starting to do. The MACD has turned up from the bottom of the range and created a buy signal.

GDX US Gold ETF

The GDX breakout is starting to build momentum in sympathy with gold after the bull flag activation. There is also a tenuous buy divergence signal (not shown) plus the MACD buy signal. The chart formation is bullish and it might be that the vacant gap will be closed a little higher up.

Dust US miners bear index

The Dust breakdown is starting to build momentum in sympathy with the positive miners charts. There is also a tenuous sell divergence signal (not shown) plus the MACD sell signal. The chart formation is bearish and it might be that the vacant gap will be closed a little lower down up.

Silver

The strong Silver chart formation in a major bullish triangle has gone dormant momentarily, and any potential breakout has been delayed. However, this is all supportive of gold and the miners and is likely to activate shortly, impacted by the dollar indecision and weak Treasury yield direction.

Gold : Silver Ratio

The gold / silver ratio continues to move sideways as it has done for 6 months and a breakout or breakdown is required before we can make constructive projections.

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Market Analysis 8 Jul 2021

Jul 8th, 2021 No comments

Executive summary

Here is a reminder of some overall market influences before we get into the detail of this week’s post. For now, loose monetary and fiscal policies will continue to fuel asset and credit bubbles, propelling a slow-motion train wreck, as the bull market continues unabated. But in the meantime, the same loose policies that are feeding asset bubbles will continue to drive consumer price inflation, creating the conditions for stagflation whenever the next negative supply shocks arrive. Making matters worse, central banks have effectively lost their independence, because they have been given little choice but to monetize massive fiscal deficits to forestall a debt crisis. But the US Federal Reserve’s daily reverse repurchase agreements are surging to all-time highs which actually means that liquidity is being drained from the financial system and QE is suffering a slow and painful death. But it also means the ‘taper’ has already begun and world markets are really unaware of this or just ignoring it.

A reverse repurchase agreement occurs when an institution offloads cash to the Fed in exchange for a Treasury security on a short term basis, and with US financial institutions currently flooded with excess liquidity, they are moving cash to the Fed at an alarming rate in excess of $500bn pm. So with US QE running at about $120bn per month and daily reverse repos far in excess of that, you get the reverse of QE which is ‘taper’.

We are all aware of what ‘taper’ does to markets, so while we might continue to get higher prices, strong declines should follow at some stage. For instance this post indicates a bullish stance for gold and miners, but strong declines will follow soon after that.

The Dow Jones continues to hold the topping pattern with conflicting signs of further new highs and a strong reversal decline forecast soon, given the general level of investor euphoria against the parlous condition of the financial and monetary system described above.

Much depends on US Treasury yield behaviour which drives dollar value and much else and at the moment yield breakdowns intensify as Treasuries hold up and at the same time equities hold up. Also, it is worthy noting that current yield weakness is supporting the gold price which the historical inverse correlation of the two indicates it should do.

The strong US$ rally persists into a region of indecision which needs to break either way. The indicators suggest a breakdown is likely which continued weak US Treasury yields support, although a bearish EuroDollar indicates the opposite.

Gold and miners have breakouts supported by weaker Treasury yields, but this may be short-lived.

Dow

The Dow Jones continues to hold the topping pattern – just. The sell divergence and rising wedge breakdown is still active but there is a key break level very close which, if breached, will lead to yet new highs. A strong reversal decline soon is forecast, whether this leads to continued new highs or not thereafter.

The Dow short term 3 months chart indicates the key break level at 34860 which if breached will lead to yet higher new highs.

US Dollar

The strong US$ index rally persists into a region of indecision (black circle). This is in a vertex-based reversal which needs to either breakout the expanding triangle or breakdown the bear flag. The indicators suggest a breakdown is likely from positions at the top of range with a MACD sell signal soon to be created. Continued weak US Treasury yields support this, although a bearish EuroDollar (next chart) does not.

EuroDollar

The EuroDollar breakdown indicates yet lower Euro values and higher dollar values but the indicators suggest the opposite.

South African Rand

Rand weakness has turned to indecision but the indicators suggest Rand strength next with dollar weakness. Activity remains largely within the overall down-sloping reducing channel formation indicating further dollar slippage, until that is finally breached on the upside.

US Treasuries

US Treasury 10 year yield breakdowns intensify as Treasuries hold up and equities hold up. This means the acid test is holding up with bonds and equities moving in the same direction, but in rising mode. Also, it is worthy noting that current yield weakness is supporting the gold price which the historical inverse correlation of the two indicates it should do. The deteriorating US reverse repo situation will support a strengthening yield bias and weak gold price, which of course happens next (only a matter of time).

Treasury yields continue to weaken and gold is starting to strengthen, as it should do in accord with the historical inverse correlation of the two. This also means that once yield starts to strengthen gold will start to weaken, and this might be quite soon.

Gold

Gold has a breakout as the bull flag activates, supported by weakening Treasury yields. Most miners are also beginning to breakout in sympathy, but all of this may be short-lived despite a somewhat bullish chart formation plus a MACD buy signal.

Hui : Gold Ratio

The gold breakout is not fully supported by miners yet as this ratio does not have a breakout. This, despite a somewhat bullish chart formation and a MACD buy signal.

GDX US Gold ETF

GDX has a breakout in sympathy with gold as the bull flag activates. The chart formation is bullish and there is a MACD buy signal. Also, it might be that the vacant gap will be closed a little higher up.

Dust US miners bear index

Dust has a breakdown from the bear flag, reflecting the breakout in US miners. Also, the chart looks bearish including the MACD sell signal, and it might be that the vacant gap will be closed a little further down.

Silver

The strong Silver chart formation in a major bullish triangle has gone dormant momentarily, and any potential breakout has been delayed. However, this is all supportive of gold and the miners and is likely to activate shortly, impacted similarly to weaker Treasury yields.

Gold : Silver Ratio

The gold / silver ratio has moved sideways for 6 months and a breakout or breakdown is required before we can make constructive projections.

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Market Analysis 1 Jul 2021

Jul 1st, 2021 No comments

Executive summary

The Dow Jones continues to develop a topping pattern with the likelihood of a break lower soon, but there is still the nagging potential for yet further new highs before any serious declines occur.
US Treasury yield breakdowns continue to hold, as Treasury values continue to hold up together with equities. This means the acid test holds up as bonds and equities move in the same direction, but in rising mode. Also, while yields continue to hesitate before strengthening, this will induce dollar weakness and gold strength which the historical inverse correlation of the two indicates it should do.
The dollar rally persists but potential towards a downwards reversal is building which once triggered will reduce dollar value. If some US Treasury yield and dollar weakness continues this could trigger some gold strength which is consistent with the technical signals in both gold and US miners charts, especially in the silver chart.

Dow

The Dow Jones continues to develop a topping pattern in the wake of the sell divergence and rising wedge breakdown, despite recent strength. The likelihood of a break lower continues to develop, but there is still the nagging potential for yet further new highs before any serious declines occur.

The Dow short term 3 months chart looks stronger after the breakdown invalidation as the breakback rises back above the 50-day MA (red). The chart is still in the wake of the sell divergence which assists in building pressure in developing towards the next break lower.

US Dollar

The strong dollar rally persists after the reducing wedge breakout but potential towards a downwards reversal is building. Price has reached the upper limit of the downward sloping expanding triangle all within a potential bear flag formation which once triggered will reduce dollar value. This situation is reflected nearly exactly by the Euro chart in the opposite direction.

EuroDollar

The strong EuroDollar decline persists after the rising wedge breakdown but potential towards an upwards reversal is building. Price has reached the bottom limit of the upward sloping expanding triangle all within a potential bull flag formation which once triggered will add strength to the Euro.

South African Rand

The chart shows signs of ending Rand weakness as dollar reverse sell divergence develops. This occurs within the overall reducing channel formation indicating further dollar slippage, until that is finally breached on the upside with Rand weakness thereafter.

US Treasuries

US Treasury 10 year yield breakdowns continue to hold, as Treasury values continue to hold up together with equities. This means the acid test holds up as bonds and equities move in the same direction, but in rising mode. Also, while yields continue to hesitate before strengthening, which the Gold Cross (green square) indicates they should strengthen, this will induce dollar weakness and gold strength: Aside from the effects of the deteriorating US reverse repo situation which will induce the opposite.

Treasury yields have not started to strengthen yet and this may add some strength to the gold price, which the historical inverse correlation of the two indicates it should do. This also means of course that if yield is about to strengthen then gold is about to weaken further.

Gold

If some US Treasury yield and dollar weakness continues this could trigger the gold chart into strength. This is consistent with the inverse H&S pattern developing as well as the bull flag in the tail of the chart. The window of opportunity is in a price range from 1750 – 1800 and break below or above these levels could be make or break for short term gold.

Hui : Gold Ratio

The HUI / Gold ratio also reflects this window of opportunity with the developing inverse H&S pattern and a combined bullish reducing wedge / bull flag in the tail of the chart. This suggests the miners decline may have terminated in sympathy with gold.

GDX US Gold ETF

The exact same is evident in the GDX chart plus a gap in the bull flag which at some point will be closed.

Dust US miners bear index

The Dust chart is similar to the GDX chart in the opposite direction, and any decline now to close the gap is consistent with a miners breakout to higher levels.

Silver

Silver is set for a bullish breakout which is supportive of gold and miners breakouts. The major bullish triangle which has developed over the past year is set to breakout strongly. Silver, like gold, also derives potential strength from US Treasury yields that are failing to strengthen.

Gold : Silver Ratio

The gold / silver ratio closed slightly lower which supports higher metal prices, but the ratio has essentially only moved sideways for the past 6 months. It needs to breakout or breakdown to provide more meaningful data for more constructive projections.

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