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Market Analysis 2 Nov 2021

Nov 2nd, 2021

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.

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