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Market Analysis 19 Oct 2021

Oct 19th, 2021

Executive summary

US equities continue to advance and have all but recovered the initial decline from the peak. It is beginning to look like the continuation of the bull trend is likely, and not yet the start of a collapse. Despite all this, another whipsaw decline could be expected before more clarity can be achieved as to eventual outcomes.

US Treasury 10 year yield could be levelling off and developing into some measure of indecisiveness. This has US equities in recovery which is usually accompanied by softer Treasury value and higher yields, which is not happening. Also, it would appear the dollar is starting a weakening phase which is usually the result of lower Treasury yield which has also not started to happen yet, so the markets are certainly at crossroads right now. Consequently, gold looks to be indecisive and could go up or down. US miners are looking bearish whilst the gold / silver ratio has a breakdown which indicates higher metal prices to come. A real concoction of mixed indicators with some commentators forecasting gold higher and some lower.

S+P 500

The S+P 500 continues to advance and has all but recovered the initial decline in the wake of the sell divergence. It is beginning to look like the continuation of the bull trend is likely. In fact buy divergence has now emerged to support higher prices. The market inconsistencies are still there, suggesting 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.

The S+P 500 3 month chart illustrates the recovery in more detail, including a new breakout and invalidation of the original breakdown. Despite all this, another whipsaw decline could be expected before more clarity can be achieved as to eventual outcomes.

US Treasuries

US Treasury 10 year yield could be levelling off after 2 breakouts as it holds above the 10-day moving average (blue). The Treasury yield indecisiveness has US equities in recovery which is usually accompanied by softer Treasury value and higher yields, which is not happening. Also, higher equities usually result in a lower dollar which has seemingly now started to happen. Lower dollar values are the result of lower Treasury yield which has also not started to happen yet, so the markets are certainly at crossroads right now.

The comparison between Treasury yield and gold illustrates the inverse correlation between the two which at the moment reflects a sideways move with both Treasuries and gold exhibiting some measure of indecisiveness.

US Dollar

The US$ is turning down as Treasuries start levelling off and equities in recovery. The chart indicates newly created sell divergence which presupposes the start of a weakening phase, and this is equally reflected in the Euro chart (next). This at the same time presupposes a weakening Treasury yield and stronger equities, as well as stronger gold.

EuroDollar

The EuroDollar is starting to turn up in the wake of buy divergence as the dollar starts to turn down. This is also supported by some other currencies, as noted in the USDzar chart next.

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 breakdown as the dollar starts to turn down. A breakdown through the converged MAs is in progress.

Gold

Gold is indecisive in line with Treasury yield starting to level off and dollar starting to weaken, plus the gold/silver ratio breaking down to indicate higher metal prices ahead. But US miners are looking bearish: A real concoction of mixed indicators with some commentators forecasting gold higher and some lower.

Hui : Gold Ratio

The strong rally in the ratio should now have ended in the wake of buy divergence turning back into reverse sell divergence. This aligns with a likely weaker gold price.

GDX US Gold ETF

The recent breakout and rally in US miners has topped and reversed down into double reverse sell divergence which should reduce prices and assist in pushing gold lower.

Silver

Silver’s stair step decline is likely to continue under the influence of sell divergence. But, a breakdown and lower gold / silver ratio suggests higher metal prices to come, plus the influence of a weaker dollar.

Gold : Silver Ratio

There is a breakdown of the strong up trend in the ratio which hints at higher metal prices, especially if the breakdown is decisive.

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