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Market Analysis 5 Aug 2021

Aug 5th, 2021

Executive summary

The Dow Jones continues in a topping pattern with a double top at a key break level which continues to hold. This now creates a strong trigger point which all indicates a powerful decline phase is about to start once the pattern breaks to release powerful pent-up negative energy 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 continues to remain weak as US equities continue to hold at elevated levels, which indicates the ‘acid test’ is holding with both US equities and Treasuries moving in the same upward direction. But this is not likely to persist much longer which also means added support to the gold market may very soon be at an end.

The US$ is still in decline which is likely to last a while longer, with support from the Euro in opposite mode. Gold has a positive bias at the start of a rally with some support from US miners, both of which may be short-lived because US Treasury yields may start to strengthen soon.

Dow

The Dow Jones continues in a topping pattern with a double top at a key break level which continues to hold. This now creates a strong trigger point at the head of a compound sell divergence which extends back 11 months which all indicates a powerful decline phase is about to start once the pattern breaks. Added impetus will be provided once the bearish rising wedge is breached decisively to release powerful pent-up negative 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 yet new all-time highs but a breakdown beckons which will test support levels. The latter is becoming the more likely as lagging upward momentum develops (not shown).

US Dollar

The US$ index is still in decline in the wake of the sell divergence, after the bear flag triggered. The MACD sell signal also remains active and this declining dollar mode is likely to last a while longer, with support from the Euro in opposite mode.

EuroDollar

The EuroDollar is still advancing in the wake of the buy divergence, after the bull flag triggered. The MACD buy signal also remains active and this advancing Euro mode is likely to last a while longer.

South African Rand

Rand bias has changed to strength as the dollar weakens. There are now dollar breakdowns of both the rising wedge and the bear flag which is likely to strengthen the Rand as well as weaken the dollar further. The reducing channel breakout has not quite invalidated but this now seems likely to occur.

US Treasuries

US Treasury 10 year yield continues to remain weak as US equities continue to hold at elevated levels, which indicates the ‘acid test’ is holding with both US equities and Treasuries moving in the same upward direction. But this is not likely to persist much longer with signs of buy divergences beginning to develop in Treasury yields. This also means added support to the gold market may very soon be at an end.

Whilst continued weak Treasury yields have been supporting gold, this is likely to be close to a turning point. Once yield starts to strengthen gold will start to weaken, but there is a distortion in the above combination chart which displays positive correlation for the last 3 months which is historically incorrect. This may now correct with disproportionate gold strength.

Gold

The Gold breakout from the bull flag is holding in the wake of buy divergence and continued reluctance of US Treasury yield strength. This suggests more gold strength to come, with the MACD buy signal also holding, just. Perhaps more impetus is required from US miners which thus far have been only partial.

Hui : Gold Ratio

The HUI / Gold ratio breakout is holding in the wake of the buy divergence in a chart that seems to hold more upside. But the balance of probabilities seems to indicate the rally may be terminating, despite the MACD buy signal.

GDX US Gold ETF

The same can be said of GDX with identical criteria. Maybe the miner rally remains short and sweet.

Dust US miners bear index

The Dust chart reflects a geared inverse situation of that of US miners, nearly exactly. This supports higher US miners and gold, with the breakdown very nearly starting to close the gap (green).The MACD sell signal has clarified somewhat in support of more downside, supporting higher miners.

Silver

Silver exhibits a continued mixed picture with a zig-zag chart reflecting procrastination. This is less bullish than gold which indicates a less positive picture. Will the minor break from the bull flag activate or will Treasury yield support remain dubious? The latter seems more likely, as the MACD buy signal continues to procrastinate.

Gold : Silver Ratio

The gold / silver ratio breakout has become static with even a lower close this week. But the trend is up indicating lower metal prices to come.

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