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Market Analysis 12 Aug 2021

Aug 13th, 2021

Executive summary

The Dow Jones breaks up through the double top at a key break level which indicates yet higher new highs in the short term, and perhaps even medium term. Despite breaching this strong trigger point the bearish patterns remain in place indicating a powerful decline phase to follow once the pattern breaks and finally tops out. Much depends on whether the bearish patterns are maintained or invalidated, because at the moment 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 starts to strengthen as US equities hold at elevated levels. This now means the acid test fails because bonds and equities are moving in the same direction. This also means that if US equities advance further Treasuries could also advance and therefore yield will weaken. This seems to be a period of acid test failure during equity strength and acid test success during equity weakness.

The US$ rallies back into indecision, whilst the earlier bearish signals continue to threaten. The earlier breakdown is invalidating, and future dollar movement depends largely on what US Treasury yield does. Gold responds to recent Treasury strength with severe breakdowns invalidating earlier bullish signals, although now enjoying a relief rally. But the situation is set for further gold weakness once all relief rally activity exhausts, and US miners are bearish in sympathy.

Dow

The Dow Jones breaks up through the double top at a key break level which indicates yet higher new highs in the short term. Despite breaching this strong trigger point the bearish patterns remain in place with the compound sell divergence and rising wedges which threaten severe declines once the bullish pattern plays out.

The Dow short term 3 months chart indicates the breakout of through the key break level to a new high. This is likely to propel the index to yet new all-time highs.

US Dollar

The US$ index rallies back into indecision, whilst the earlier sell divergence holds and continues to threaten. The earlier bear flag breakdown is invalidating, and future dollar movement depends largely on what US Treasury yield does.

EuroDollar

The EuroDollar declines back into indecision with the earlier bull flag breakout invalidating. The earlier buy divergence has extended and looks set to advance Euro value but the MACD buy signal has invalidated and consequently Euro value suffers indecision, similar to the dollar.

South African Rand

The Rand also declines back into indecision, reflecting the dollar rally back into indecision with the wedge and flag breakdowns invalidating. The reducing channel breakout is still active, after a brief invalidation, and this promises dollar strength and Rand weakness.

US Treasuries

US Treasury 10 year yield starts to strengthen in the wake of buy divergence, but also as US equities hold at elevated levels. This means the acid test fails because bonds and equities are moving in the same direction. This also means that if US equities advance further Treasuries could also advance and therefore yield will weaken. This seems to be a period of acid test failure during equity strength and acid test success during equity weakness.

Treasury yield strengthens slightly and gold declines quite markedly, restoring the historic correlation between these two elements. Much depends on how Treasury yield responds in the next period, because this is the main driver of investment decisions.

Gold

Gold responds with two severe breakdowns to recent Treasury strength. This invalidates the earlier bull flag breakout, although gold is enjoying a relief rally. But the situation is now set for further gold weakness once all the relief rallying activity exhausts. The MACD buy signal has invalidated and US miners are bearish in sympathy with gold.

Hui : Gold Ratio

The HUI / Gold ratio breakout is invalidating as US miners decline in sympathy with gold. This process has also developed sell divergence which should prompt further declines.

GDX US Gold ETF

The same can be said of GDX with identical criteria of the bull flag invalidating and development of sell divergence which should prompt further declines.

GDX Junior : GDX Ratio

The GDXJ:GDX ratio indicates Juniors leading Majors down the reducing channel which indicates more miner weakness ahead.

Silver

Silver’s earlier picture of zig-zag indecision has resolved into multiple breakdowns in sympathy with gold and Treasury yield strength. This too will enjoy some level of relief rallies, as with gold, but is now set for further silver weakness once all the relief rallying activity exhausts.

Gold : Silver Ratio

The strong gold / silver ratio breakout indicates lower metal prices ahead.

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