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Market Analysis 15 Jul 2021

Jul 15th, 2021

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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