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Market Analysis 9 Sep 2021

Sep 9th, 2021

Executive summary

The Dow Jones starts to break down but the S+P 500 remains bullish which creates non-confirmation between the top two US indices, as does Dow Theory between the Industrial and Transport Indices. The forecast strong equity decline continues to be expected any time soon, but not just yet it would appear. Much depends on all the interconnected influencing market factors which continue to impact outcomes, principally US Treasury yield. We remain at the forefront of a long-term decline but many contradictory outcomes can still occur before this as the effect of numerous impacts continue to bore in and eventually collapse the structure.


US Treasury 10 year yield continues to strengthen slightly in the face of equities which continue at elevated levels, and various options are in limbo for now. The US dollar appears to be at the end of a brief rally correction after recent weakness with more weakness to follow. Gold reacts down slightly as Treasury yield edges up, with the potential of a strong breakout either way in metals and miners depending of Treasury yields.

Dow

The Dow Jones starts to break down in the wake of sell divergence which could turn into the strong forecast decline, once the bullish pattern plays out.

But the S+P 500 remains bullish, although also with the impact of sell divergence. This therefore creates non-confirmation between the top two US indices as does Dow Theory between the Industrial and Transport Indices. The forecast strong equity decline continues to be expected any time soon, but not just yet it would appear.

US Treasuries

US Treasury 10 year yield continues to strengthen slightly after the mini-break which continues to hold, in the face of equities which continue at elevated levels. The chart appears to leave options in limbo because the semi-bullish appearance is tempered by what could be the development of a bear flag (red arrow) which will eventually lead to lower yield. This would be in perfect accord with lower dollar and higher gold.

Tepid Treasury yield strengthen nevertheless results in tepid gold declines, which maintains 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.

US Dollar

The US$ index edges higher after recent declines, but the breakdown continues to hold indicating the correction up is near completion. The compound sell divergence continues to impact and the dollar is probably soon to start testing support again. This will impact negatively on other currency values especially the Euro.

EuroDollar

The EuroDollar edges lower after recent gains, and further advances could start soon because of the buy divergence. If dollar weakness is next the Euro will start testing resistance again in breaking to higher highs over the next period of months.

South African Rand

The Rand edges up in the wake of dollar sell divergence which is likely to still strengthen further over a period of months. This Rand strength is disproportionate, because it has occurred in a straight line even against recent dollar strength. If dollar weakness is next then further Rand strength will follow, reflected in breaching the key break line of the bear flag.

Gold
Pic Gold 12m

Gold reacts down from strong resistance as Treasury yield edges up, as it once again criss-crosses the 200-Day MA (green). Again, the 12 month gold chart is indicating very little.

But the 2 year gold chart illustrates the pivot triangle that has developed with the potential of a very bullish breakout (blue) and a very bearish breakdown (red). If Treasury yield dose in fact break lower then gold will advance on the bullish diagonal above, and vice versa.

Hui : Gold Ratio

US miners are advancing up into a developing bear flag reflected also in the HUI / Gold ratio. Much depends on Treasury yields and dollar values: If these move up the bear flag will trigger. But if they move down the reducing channel could become a bull flag with strong gains in both gold and miners.

GDX US Gold ETF

But the GDX chart in fact looks bullish after turning up at a double bottom in the wake of buy divergence. The advance of miners up the bear flag has stalled, and may even already have breached the bottom break line. Much depends on Treasury yields and dollar values, as commented for the Hui / Gold ratio, and a break either way will be extensive.

Silver

Silver continues to underperform gold in a continually increasing gold/silver ratio, and has now developed sell divergence with negative implications.

Gold : Silver Ratio

The strong gold / silver ratio breakout continues to hold for now, indicating still lower metal prices ahead.

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