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Market Analysis 16 Sep 2021

Sep 16th, 2021

Executive summary

US equities are starting to break down, with the top indices largely in confirmation with each other, which could now develop into a strong decline once the bullish pattern plays out. Much depends on all the interconnected influencing market factors which continue to impact outcomes, principally US Treasury yield, as we remain at the forefront of a serious decline. But there are many conflicting signals at the moment which continue to confuse, with a number of market segments moving sideways in limbo.

US Treasury 10 year yield continues to move sideways while options remain in limbo with the seeming potential to move either way. Treasury value and US equities are moving opposite to one another which represents an acid test failure. If this continues once equities start a more serious decline it means Treasury yield will decline more seriously with implications of lower dollar and higher gold values. But most indications are for lower gold.

Indications point to a weaker dollar over the next number of months which is a logical response to lower Treasury yields. This in turn indicates higher gold but most indications point to lower gold, especially the gold / silver ratio and silver itself.

Dow

There is little change in the Dow Jones status from last week as it continues to start a breakdown in the wake of the sell divergence. This could turn into the strong decline, once the bullish pattern plays out.

The S+P 500 is also now nudging the start of a breakdown in the wake of sell divergence which begins to confirm the Dow Jones shape. The two top US indices are therefore now in accord with one another in pointing towards the start of a serious decline phase.

US Treasuries

US Treasury 10 year yield continues to move sideways in mini-breaks up and down while options remain in limbo. The mini-break down (red circle) reflects a strengthening in Treasury value as US equities start to turn down, which represents an acid test failure with equities and bonds moving in opposite direction. If this continues once equities start a more serious decline it means Treasury yield will test the support zone more seriously with implications of lower dollar and higher gold values.

Treasury yield moving sideways in limbo reflects in gold moving sideways in limbo. 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 continues to weaken as sell divergence continues to impact with the breakdown through the key break line holding good. This indicates a weaker dollar over the next number of months which is a logical response to lower Treasury yields.

EuroDollar

The EuroDollar correction down appears to be complete as it starts to edge stronger with the breakout through the key break line holding good and the influence of the but divergence kicking in. If dollar weakness is next the Euro will start testing resistance again in breaking to higher highs over the next period of months, which includes an inverse head and shoulders beginning to develop.

South African Rand

The Rand weakens slightly despite slight dollar weakness, but should begin to strengthen again as the dollar continues to weaken under the influence of sell divergence.

Gold

Gold is moving sideways in limbo having reacted down from strong resistance. This is in accord with and caused by Treasury yield also moving sideways in limbo. Again, the 12 month gold chart is indicating very little with potential moves either way.

A slightly broader view in the 2 year chart illustrates the pivot triangle that has developed with the potential of a very bullish breakout (blue) and a very bearish breakdown (red). A Treasury yield break either way will cause gold to do the opposite.

Hui : Gold Ratio

The tepid ratio advance has deteriorated into a sideways to up move leaving it in limbo. The chart continues to look bearish which presupposes gold is likely to go down and not up.

GDX US Gold ETF

But the GDX chart in fact looks more bullish in the wake of buy divergence and turning up from a double bottom. Like gold itself, much depends on movement in Treasury yield and dollar value.

Silver

Silver continues to underperform gold in a continually increasing gold/silver ratio, and continues in stair stepdown mode to a potential breakdown of the bear flag. Very bearish.

Gold : Silver Ratio

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

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