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Market Analysis 12 Oct 2021

Oct 12th, 2021

Executive summary

US equities continue in breakdown mode and look precarious which could be the start of a collapse. Or will ‘buy the dips’ win. There are also a number of contradictory market signals that suggest the market will again rise to new highs. These include mainly oil (and some other commodities) and Bitcoin for example. You cannot have bull market conditions in a bear market collapse.

US Treasury 10 year yield continues to breakout as Treasuries decline with the equity market looking precarious. Further yield increases look likely which will weaken gold, but could continue to support the dollar which is set to weaken if other forex is considered. So, some degree of dichotomy is set to emerge.

The US$ is still strong in line with rising US Treasury yields, although the next trend is likely down despite the US Fed need to keep the dollar strong to counter rising inflation. Gold declines in line with Treasury yield strength, and this looks set to continue.

S+P 500

The S+P 500 continues in negative mode as it holds the breakdown in the wake of sell divergence. This looks precarious and could be the start of a collapse, or will ‘buy the dips’ win. There are also a number of contradictory market signals that suggest the market will again rise to new highs. These include mainly oil (and some other commodities) and Bitcoin for example. You cannot have bull market conditions in a bear market collapse.

US Treasuries

US Treasury 10 year yield continues to breakout as Treasuries decline with the equity market looking precarious. The chart indicates further yield increases as it breaks up through the moving averages which changes the sideways mode to up. US equity declines are therefore matched by Treasury declines as they continue to move in the same direction which has triggered the stronger dollar. The recent reversal up in gold and miners is sure to now turn weaker as yield strengthens.

The comparison between Treasury yield and gold illustrates the inverse correlation between the two which will weaken the gold market if yields continue to rise.

US Dollar

The US$ is still strong in line with rising US Treasury yields. The next trend is likely down despite the US Fed need to keep the dollar strong to counter rising inflation. The dollar is now overbought and could be reaching the start of a decline phase soon, because some other currencies are beginning to signal buy divergences (such as Euro and ZAR) which will weaken the dollar.

EuroDollar

The EuroDollar is still weak and oversold and is now signalling buy divergence which should soon see the key break line tested. There are a numberof other currencies in this position such as the Swiss Franc, Jap yen, and ZAR.

South African Rand

The dollar / Rand is moving sideways to down in line with dollar sell divergence, but continues in a zig-zag sideways pattern with a potential breakdown in progress. This promises a stronger Rand and weaker dollar, but is seemingly prevented from breaking down by the converging 50-day (red) and 200-day (green) moving averages.

Gold

Gold declines in line with Treasury yield and dollar strength, and looks precarious for further declines especially with a prominent bearish candle. Continued US Treasury yield strength should add impetus to gold weakness.

Brent Crude Oil

This 20 year long term view of the oil price begs the question: Is oil about to breakout? Because, if it does you cannot have equities in a bear market collapse. Perhaps the oil gauge is something to watch carefully.

Hui : Gold Ratio

The recent reversal up in the ratio is due to weaken again in the wake of reverse sell divergence which developed in the rise. This aligns with a likely weaker gold price.

GDX US Gold ETF

The recent reversal up in US miners could be complete with gold likely to weaken in line with US Treasury yield strength. The chart illustrates that the weakening may already have started at the upper limit of the reducing channel.

Silver

The recent reversal up in silver could have topped out in line with US Treasury yield strength. Perhaps the entire precious metals group is due for further declines as the gold / silver ratio (next chart) continues in a strong up trend.

Gold : Silver Ratio

The ratio continues in a strong up trend despite closing lower, and this portends yet lower metal prices.

Bitcoin

Bitcoin is set to rise to new high in a strong 12 month chart which includes a sell divergence at its all-time high (above $65000) and a buy divergence in Jun 2021 (below $30000). If this plays out in this way it becomes the other strong contradictory market signal along with oil. Because, you cannot have equities in a bear market collapse while Bitcoin goes to a new high. Perhaps Bitcoin is something to watch carefully too.

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