Market Demons

Executive summary

US equities turn lower with a correction in progress in an overheated market, probably with yet lower prices to follow. The correction down could now intensify, but the extent of the decline remains to be seen, before the bull trend continues advancing into the future. For now the structural and endemic problems in the market remain camouflaged which will probably delay the cataclysmic break point until later, perhaps even much later.

US Treasury 10 year yield corrects down this week but maintains the upward bias, in a chart structure that remains bullish. US Treasuries therefore advanced slightly this week in the face of US equity weakness. Any breakout will ignite further yield increases and provide additional impetus to a corrective equity breakdown including gold weakness.

The US$ reacts down from the peak at what is probably the start of a weakness phase, with the Euro looking even more certainly at the start of a strengthening phase. Gold and miners are poised to decline sharply.

S+P 500

The S+P 500 turns down from its peak and is poised to decline further as a correction is in progress in an overheated market. But the overall rising channel pattern still continues for now, and it remains to be seen whether the correction breaches the lower parameter of the channel before the bull trend continues advancing into the future.

The short term 3 month chart illustrates the sell divergence which for now urges the market lower as the 10-day moving average (blue) turns from support to resistance. The correction down could now intensify, and the extent of the decline remains to be seen.

Brent oil

The oil price continues to correct down in the wake of sell divergence and is in sympathy with equities generally.

US Treasuries

US Treasury 10 year yield corrects down this week but maintains the upward bias, in the wake of the buy divergence. The trend therefore remains up and it is only a matter of time before there is a breakout above the previous high of 8 months ago, in a chart structure that remains bullish. US Treasuries therefore advanced this week in the face of the US equity weakness. Any breakout through resistance levels will ignite further yield increases and provide additional impetus to a corrective equity breakdown including gold weakness.

The Treasury yield and gold comparison chart illustrates gold stalling in its decline in line with Treasury yield weakness this week. But the continued upward bias in yield should be accompanied by further gold declines, if the historic inverse correlation is to be restored, into a downward sloping channel for gold.

US Dollar

The US$ reacts down from the peak at what is probably the start of a weakness phase, with price at the upper edge of the rising channel. The dollar and Euro are opposites and forecast dollar weakness is supported by buy divergence in the Euro.

EuroDollar

The EuroDollar reacts up from the bottom at what is probably the start of a strength phase, with price at the bottom edge of the reducing channel. This is supported by the creation of a strong buy divergence going back 6 months in what is probably an overdone decline.

South African Rand

The Rand corrects slightly from extreme weakness, having depreciated 25% in the last 6 months against the dollar. This is probably the start of a strengthening phase against the dollar, although virtually totally dependent on the dollar.

Gold

The gold breakdown from the bear flag has stalled, assisted mainly by the weakening in US Treasury yield this week. In partial recovery Gold has reacted back up to the bear flag in what could be a ‘kiss goodbye’ because gold should once again resume declines, boosted by US miner behaviour and silver which is leading gold lower in a gold – silver ratio breakout.

Hui : Gold Ratio

The HUI – gold ratio bear flag trigger extends weakness in the wake of multiple sell divergence. More weakness is likely to follow because of this which in turn promises yet lower gold.

GDX US Gold ETF

Like the HUIgold ratio, the GDX bear flag trigger extends weakness in the wake of sell divergence, with more weakness likely to follow, which in turn promises yet lower gold.

Silver

The Silver bear flag trigger extends declines in the wake of sell divergence which should produce yet lower silver prices. But, more importantly, silver is leading gold lower producing a gold-silver ratio breakout which is a powerful indicator of yet lower precious metal prices.

Gold : Silver Ratio

The ratio has a breakout to a higher close at 78.12, because silver is leading gold lower. A higher ratio indicates yet lower metal prices to come.

Executive summary

US equities remain at elevated levels, but are seriously overstretched with a correction down likely soon. Further advances to higher levels are unlikely before the correction has run its course. The overall rising trend continues, and the overall shape and limits of the forecast correction remains to be seen before the bull trend continues advancing into the future. For now the market ‘roller-coaster’ continues despite camouflaging the real structural problems which will emerge when we reach a cataclysmic break point with a broken international monetary system and artificially low interest rates in a world awash with exponential debt. But the short term picture looks a little bit less bullish and also the oil price continues to correct down which may be a sign of equities correcting down soon.

US Treasury 10 year yield continues sideways to up as Treasuries decline while equites remain elevated, and this could be the trigger for the start of the equity correction. Any break through resistance levels will ignite further yield increases and provide additional impetus to a corrective equity breakdown. This situation of course means a stronger dollar and weaker gold, both of which are now obliging.

The US$ is on a tear to a new high with probably more bullish dollar potential, but of course the next decline phase draws nearer, while gold and US miners are finally staring to correct down.

S+P 500

The S+P 500 remains at elevated levels, but is seriously overstretched with a correction down likely soon. Further advances to higher levels are unlikely before the correction has run its course. The overall rising channel pattern continues, and it remains to be seen whether the correction breaches the lower parameter of the channel before the bull trend continues advancing into the future.

But the short term 3 month chart indicates the creation of sell divergence as the index turns down from the top. This may trigger a sell-off correction sooner although the numbers are still hugging the 10-day MA (blue) with little other sign of a reversal.

Brent oil

The oil price continues to correct down in the wake of sell divergence and this may be a sign of a general correction down soon.

US Treasuries

US Treasury 10 year yield continues sideways to up in the wake of buy divergence, and it is probably only a matter of time before the yield has a breakout above the previous high of 8 months ago, in a strongly bullish chart pattern. US Treasuries therefore continue to decline as equities remain elevated, and this could continue to be the trigger for the start of the equity correction. Any break through resistance levels will ignite further yield increases and provide additional impetus to a corrective equity breakdown.

The Treasury yield and gold comparison chart illustrates the start of correcting back to the historic inverse correlation between the two, as gold finally starts to capitulate correctly. But gold still needs to develop into a declining channel to correlate inversely with the Treasury yield advancing channel.

US Dollar

The US$ is on a tear to a new high after the bull flag breakout of the previous week. This certainly looks like more bullish dollar potential, but of course the next decline phase draws nearer with price at the upper edge of the rising wedge and rising channel.

EuroDollar

The EuroDollar extends the breakdown from the bear flag of the previous week. This certainly looks like more bearish Euro potential, but of course the next advance phase draws nearer with price at the bottom edge of the reducing wedge and reducing channel.

South African Rand

The Rand weakens to a new extreme in the wake of dollar strength, and sets up dollar sell divergence in the process. This should assist in launching the reversal process which could see Rand strength soon.

Gold

Gold has a breakdown as counter-logic turns to true logic in the face of strengthening Treasury yields. In the process the gold price has reached an important breakdown point at the bear flag trigger which could see yet lower gold test strong support.

Hui : Gold Ratio

The breakout of the previous week turns out to be false in the wake of multiple sell divergence, as the ratio triggers the bear flag. This should yield yet lower ratio values. Strength in Treasury yields is gold bearish and US miners are in a breakdown.

GDX US Gold ETF

There is a marked breakdown in US miners in the wake of sell divergence, as gold breaks lower. GDX has reached an important breakdown point at the bear flag trigger which should see a much lower GDX in due course.

Silver

Silver has a breakdown in the wake of sell divergence and, like gold, will be drawn lower by increasing Treasury yields. Price is also at the start of an important breakdown as the bear flag starts to trigger which should see yet lower silver prices.

Gold : Silver Ratio

The ratio is still essentially moving sideways despite a momentary breakout at the triangle apex. The ratio will advance if silver leads gold lower, which could now be likely, given all the background criteria.

Executive summary

US equities hold at elevated levels, but are seriously overstretched with a correction down likely soon. Further advances to higher levels are unlikely before the correction has run its course. The overall rising trend continues, and the overall shape and limits of the forecast correction remains to be seen before the bull trend continues advancing into the future. For now the market ‘roller-coaster’ continues despite camouflaging the real structural problems which will emerge when we reach a cataclysmic break point with a broken international monetary system and artificially low interest rates in a world awash with exponential debt.

US Treasury 10 year yield resumes advancing as Treasuries decline while equities remain elevated, and this could be the trigger for the start of the equity correction. Any break through resistance levels will ignite further yield increases and provide additional impetus to the corrective equity breakdown. This situation of course means a stronger dollar and weaker gold, but only the dollar is obliging at the moment while gold is illogically and stubbornly also stronger.

The dollar has in fact broken up to a new high and still has additional upside before the start of an eventual weaker phase draws nearer, while gold and US miners extend their rally before the eventual reversal occurs (probably with a vengeance).

S+P 500

The S+P 500 holds at elevated levels, but is seriously overstretched with a correction down likely soon. Further advances to higher levels are unlikely before the correction has run its course. The overall rising channel pattern continues, and it remains to be seen whether the correction breaches the lower parameter of the channel before the bull trend continues advancing into the future.

US Treasuries

US Treasury 10 year yield resumes advancing in the wake of RSI reverse buy divergence as the yield curve punches up through all the MAs again. US Treasuries therefore decline as equities remain elevated, and this could be the trigger for the start of the equity correction. Any break through resistance levels will ignite further yield increases and provide additional impetus to the corrective equity breakdown.

The Treasury yield and gold comparison chart illustrates the exaggerated breakdown of the historic inverse correlation between the two, with continued yield increases as well as gold increases (actually resembling a strong breakout). Gold should be decreasing and the dollar should be increasing (which it is), which simply means the current gold strength is illogical and temporary and will reverse any time soon with a vengeance.

US Dollar

The US$ has a breakout to a new high as the bull flag triggers. It also has still more bullish potential, although the next decline phase draws nearer.

EuroDollar

The EuroDollar has a breakdown to a new low as the bear flag triggers. It also has still more bearish potential, although the next advance phase draws nearer.

South African Rand

The Rand continues in sideways to weaker drift in the wake of dollar strength, and this pattern is set to continue further.

Gold

Gold has multiple breakouts as counter-logic prevails, because strengthening Treasury yield should be drawing gold weaker which it is not. The opposite is happening and this will reverse with a vengeance any time soon.

The longer term 2 year gold chart actually illustrates a bullish breakout from the pivot triangle indicating further increases ahead. There are some who argue for a bullish breakout through the red trendline before additional advances can be triggered, and this has not yet happened. So the balance between the logic of Treasury yield influence and that of technical chart influence continues for now and this may or may not be settled in the next week or two.

Hui : Gold Ratio

The HuiGold ratio bearish signals have extended: The bear flag into a multiple bear flag, and the sell divergence into a compound sell divergence. It therefore begs the question whether the attempted breakout is real or fake? Strength in Treasury yields is gold bearish and therefore probably means the HuiGold ratio is bearish also.

GDX US Gold ETF

The same has occurred in the GDX chart, with the bear flag developing into a multiple bear flag and the sell divergence extending further out in time.

Silver

Silver appears overbought and closer to a breakdown as the bear flag develops into a multiple bear flag, and in the wake of sell divergence. As with gold, silver will also be drawn down by increasing Treasury yield eventually.

Gold : Silver Ratio

The ratio is in limbo at the moment moving sideways towards the triangle apex after which it will break either way.

Executive summary

US equities continue to break to new highs, and increasingly seriously overstretched condition. They may advance further but a serious correction down is soon likely. For now the overall rising trend continues, and once the downward correction has unfolded, will likely continue its advance into the future. The market ‘roller-coaster’ continues despite camouflaging the real structural problems which will emerge when we reach a cataclysmic break point with a broken international monetary system and artificially low interest rates in a world awash with exponential debt.

US Treasury 10 year yield declines slightly and Treasuries are therefore increasing with US equities at the same time, which is a momentary situation that cannot last. This might be the start of a correction down, although rising yields can probably be expected to hold over the foreseeable future, which also means a stronger dollar and weaker gold.

The dollar continues to decline slightly, but is essentially actually mixed. There could be the development of a bull flag which if triggered will lead to a stronger dollar, which is in accord with rising Treasury yields in the medium term. Gold is indecisive as correlation is lost temporarily with US Treasury yields, and US miners are starting to weaken which will assist in weakening gold.

S+P 500

The S+P 500 continues to break to new highs, and is increasingly seriously overstretched. It may advance further but a serious correction down is soon likely. For now the overall rising channel pattern continues, and once the downward correction has unfolded the bull trend is likely to continue in its advance into the future.

US Treasuries

US Treasury 10 year yield declines slightly in the wake of RSI sell divergence as the short term 10-day moving average (blue) is penetrated on the downside decisively for the first time in about 6 weeks. Treasuries are therefore increasing with US equities at the same time, which is a momentary situation that cannot last. This might be the start of a correction down, although this chart pattern of rising yields can probably be expected to hold over the foreseeable future.

The comparison between Treasury yield and gold illustrates the temporary breakdown of the historic inverse correlation between the two. This situation should create some measure of volatility in both dollar value and gold until the normal inverse correlation is once again established.

US Dollar

The US$ continues to decline slightly in the wake of sell divergence, but is essentially actually mixed. There is a strong reaction up whenever value nears the bottom edge of the rising channel, and could it be the development of a bull flag between support and resistance which if triggered will lead to a stronger dollar.

EuroDollar

The EuroDollar continues to advance slightly in the wake of buy divergence, but is essentially actually mixed. There is a strong reaction down whenever value nears the key break line, and could it be the development of a bear flag between support and resistance which if triggered will lead to a weaker Euro.

South African Rand

The Rand weakened markedly in the continued sideways zig-zag pattern in the dollar/zar currency pair. There was a strong break through the converged MAs in the process and further breaks to Rand weakness seem likely, but if the zig-zag is to continue then the next phase will shift to Rand strength which seems less likely.

Gold

Gold is moving sideways indecisively as correlation is lost temporarily with US Treasury yields. Breakouts and breakdowns (black circle) are invalidating, all in a region below the level of strong resistance. The battle for triangle breakout and bear flag breakdown will decide future direction.

The longer term 2 year gold chart illustrates the pivot triangle for a bullish breakout or very bearish breakdown, and the major breakout line (green) will need to be penetrated to produce any bullish activity in the gold market.

Hui : Gold Ratio

The HuiGold ratio rally has ended as the bear flag triggers into the start of decline in the wake of sell divergence. This indicates a probable bearish gold outlook, as US miners exert a drag on the metal.

GDX US Gold ETF

The GDX chart is similar as the bear flag triggers the start of decline in the wake of sell divergence. This is probably even more direct an indication of a bearish gold outlook.

Silver

Silver’s rally has completed and price is drifting sideways to down as sell divergence starts to influence. There is some indecision, like gold, as correlation is lost temporarily with US Treasury yield. The chart illustrates potential tickling of a breakdown of the bear flag in the lee of sell divergence.

Gold : Silver Ratio

The ratio turned up after the recent low, closing higher at 74.60. This reflects a change as gold starts to outperform silver once again. Higher ratio levels reflect metal price declines.