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Market Analysis 22 Jul 2021

Jul 22nd, 2021

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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