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Market Analysis 1 Jul 2021

Jul 1st, 2021

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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