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Market Analysis 20 Dec 2021

Dec 21st, 2021

Executive summary

US equity decline gathers momentum and is set to continue declining, after a probable interim reaction up. The technical patterns are still intact though and until these are breached on the downside the elevated levels will be maintained by continued euphoric investor sentiment in a bull trend that will continue advancing into the future. 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 maintains a minor slow weakening as it essentially moves sideways in chart that remains bullish. It is likely to break above the previous high of 9 months ago which will ignite further yield increases providing additional impetus to an equity breakdown, including gold weakness. At the moment Treasury values therefore advance slightly as US equities decline.

The earlier forecast to the start of a probable dollar weakness phase is rapidly being replaced by a continued strength phase powered by the bullish signals. This is supported fundamentally by comparing the economically weaker EU against the US, and is also consistent with a completed countertrend rally in gold which should now start declining. This is supported by continued weak US miners plus a now stronger dollar forecast.

S+P 500

The S+P 500 decline gathers momentum and is set to continue declining, after a probable interim reaction up. The rising channel pattern is still intact though and until this is breached on the downside the elevated levels will be maintained by continued euphoric investor sentiment in a bull trend that will continue advancing into the future.

The short term 3 month chart illustrates the pressure build-up in a triple top with higher volume in the current decline compared with the previous (middle top). Technically price is still only straddling the 50-day MA (red) with the 200-day MA (green) another 5% lower down at 4331.

Brent oil

Oil continues to mimic US equities except that price has declined further and penetrated the 200-Day MA (green), as it too gathers decline momentum.

US Treasuries

US Treasury 10 year yield maintains a slow weakening as it fashions a zig-zag pattern in the reducing wedge formation. This remains bullish though and is likely to break to the upside in due course. Any breakout above the previous high of 9 months ago will be particularly bullish in igniting further yield increases providing additional impetus to an equity breakdown, including gold weakness. At the moment Treasury values therefore advance slightly as US equities decline.

The Treasury yield and gold comparison chart illustrates yield and gold essentially moving sideways as a continued contra-indication of the historic inverse correlation of these two elements moving in opposite directions. Gold is still nowhere near a declining channel against the yield upward slanting expanding wedge. At some point logic will reassert itself in a rising yield channel and declining gold channel. Until that happens markets will remain ‘artificial’ in continuing to camouflage the endemic problems brought about by central bank mismanagement.

US Dollar

The earlier forecast to the start of a probable US$ weakness phase is rapidly being replaced by a continued strength phase in a continued rising channel powered by the bullish cap and handle formation which triggered in late Nov 2021, plus numerous H&S formations. This is supported by fundamental economic comparison between the EU (very weak) and the US (very strong). The RSI oscillator in the chart has moved down from overbought levels which should assist any dollar breakout. This is also consistent with a completed countertrend rally in gold price, which should also now start declining.

EuroDollar

Likewise, the earlier forecast to the start of a probable EuroDollar strength phase is rapidly being replaced by a continued weakness phase in a continued reducing channel powered by the bearish inverted cap and handle formation which triggered in Oct/Nov 2021, plus numerous inverted H&S formations. This is also of course supported by fundamental economic comparison between the EU (very weak) and the US (very strong). The RSI oscillator in the chart has moved up from oversold levels which should assist any EuroDollar breakdown.

South African Rand

Likewise, the earlier forecast to the start of a probable Rand strength phase is rapidly being replaced by a continued weakness phase in a continued dollar rising channel powered by the bullish cap and handle formation which triggered in late Nov 2021, plus numerous H&S formations. This is of course all very dollar dependent.

Gold

Gold ‘blipped’ up momentarily before reacting down from the region of strong resistance (black circle). It is now in an area of decision to either breakout or breakdown. But, continued weak US miners plus a now stronger dollar forecast is likely to push gold into further declines, give or take any short term counter moves.

Hui : Gold Ratio

The HUI – gold ratio is still in decline mode in the wake of multiple sell divergence and bear flag activation. 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 is in decline mode in the wake of sell divergence and bear flag activation, with more weakness likely to follow, which in turn promises yet lower gold.

Silver

Silver still in decline mode in the wake of sell divergence and bear flag activation. It continues to lead gold lower which is bearish, and this should produce yet lower precious metal and miner prices.

Gold : Silver Ratio

The ratio breakout extends to yet a higher close, just short of the previous high at about 81.5, because silver is leading gold lower. A higher ratio indicates yet lower metal prices to come.

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