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Market Analysis 23 Sep 2021

Sep 23rd, 2021

Executive summary

US equities are in breakdown mode, with the top indices in confirmation with each other, which could be the start of a strong decline forecast for a long time now. Much depends on US investor euphoria and the ‘buying the dips’ pattern experienced in previous breakdown declines. This could forestall the inevitable for a time but we remain at the forefront of a serious decline.


US Treasury 10 year yield continues to move sideways despite equities breaking down and having no effect on yield, yet. This to some degree passes the acid test with Treasury values at least not increasing as equities decline. But it is still early days.

Indications still point to a weaker dollar over the next number of months although it has not started yet. This would be the logical response to lower Treasury yields which have also not started yet. Once Treasury yields start to decline it would mean higher gold, which may have already started, if silver and the gold / silver ratio are accurate indicators.

Dow

The Dow Jones is in breakdown mode in the wake of the sell divergence and a strong break through the rising channel trendline. This could be the start of a strong decline which has been forecast for a long time now. Much depends on the US equity euphoria and the ‘buying the dips’ pattern experienced in previous breakdown declines.

The Dow 3 month chart illustrates the start of freefall breakdown and the attempt at a snapback rally which may or may not hold off further declines. Support has virtually vanished.

US Treasuries

US Treasury 10 year yield continues to move sideways as it hugs the 200-Day MA (green). Whilst equities are breaking down funds flow into Treasuries are having no effect on yield, yet. This to some degree passes the acid test with Treasury values at least not increasing as equities decline. But it is still early days. Static yields still has the dollar not weakening yet although gold is starting a tepid rally.

The comparison between Treasury yield and gold illustrates sideways yield and the start of a tepid gold rally.

US Dollar

The US$ index is still rallying but the sell divergence should impact soon. The breakdown is still holding although if the key break line is penetrated it will usher in a period of dollar weakness perhaps lasting many months. This implies that Treasury yield will also have softened and boosted the gold rally.

EuroDollar

The EuroDollar is still declining but the buy divergence should impact soon. The breakout is still holding although if the key break line is penetrated it will usher in a period of Euro strength perhaps lasting many months.

South African Rand

The Rand weakens in line with dollar strength, but should begin to strengthen again as the dollar weakens in line with divergence. The slightly broader view illustrates Rand activity within the broader reducing channel of continued Rand strength that has lasted more than a year now.

Gold

Gold starts a tepid rally as Treasury yield moves sideways in limbo and the dollar is set to start weakening. Again, the 12 month gold chart is indicating very little although there is now some evidence of support from US miners.

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 down move leaving it in limbo and looking bearish which should retard any gold strength. The expanding triangle in the tail of the chart is slightly bullish and the GDX chart (next) is even more bullish.

GDX US Gold ETF

Declines over the past 10 weeks have developed into buy divergence and further into compound buy divergence. There is the beginning of a tepid recovery starting that should be boosted by the divergence which in turn will boost gold. Like gold itself, much depends on movement in Treasury yield and dollar value.

Silver

Silver has turned more bullish all of a sudden with the chart reverse sell divergence developing further into buy divergence. This is followed by the start of a tepid recovery which should develop more momentum under the impact of buy divergence. Also, the gold / silver ratio (next) seems to have changed direction ushering in higher metal prices.

Gold : Silver Ratio

The ratio seems to have peaked and in the process developed sell divergence which could now extend the decline that has started. If this is the start of a period of silver outperforming gold with resultant lower ratios then it will also mean higher metal prices.

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