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Market Analysis 18 Jan 2022

Jan 18th, 2022

Executive summary

US equities are still in correction mode down in the wake of supporting market signals, but continue nevertheless to maintain a slight upward bias. Most of the parameters are in place for the decline to continue but as long as the upward bias is maintained so too does the bull trend. The structural and endemic problems in the market remain camouflaged which will probably delay the cataclysmic break point until later, perhaps even into 2023.


US Treasury 10 year yield holds the breakout of last week which represents the precursor towards higher yields and the trend towards higher interest rates. This is likely to ignite further yield increases as the period of higher interest rates gathers momentum, with inevitable effects on the full gambit of all markets which at the moment seem to be drifting sideways in limbo.


The dollar still looks like a breakout to higher levels as certain chart patterns play out which could mean one more new high followed by a weakening phase, which is consistent with signals from competing currencies notably the Euro. It could also mean gold will weaken first followed by strength during the dollar weakening phase.

S+P 500

The S+P 500 is still in correction mode down in the wake of sell divergence, but it continues to hold above the bottom of the rising channel. Most of the parameters are in place for the decline to continue but as long as the rising channel remains in place so too does the bull trend which incidentally continues to move ahead well above the 200-day MA (green) which becomes the next defensive line to be breached.

The short term 3 month chart not only illustrates the decline from the sell divergence but also continued maintenance of the bullish shape in the chart of higher highs and higher lows. This might therefore represent a continuation of the bull trend in further delaying any more serious decline until later.

US Treasuries

US Treasury 10 year yield holds the breakout of last week which represents the precursor towards higher yields and the trend towards higher interest rates. Higher yield means that Treasury values are declining as US equities continue to correct down. This strong rising trend setup will ignite further yield increases as the period of higher interest rates gathers momentum, with inevitable effects on the full gambit of all markets which at the moment seem to be drifting sideways in limbo.

The Treasury yield and gold comparison chart illustrates yield rising and gold sideways, which maintains the breakdown of the correct historic inverse correlation of these two elements. The yield rise is striking while the Gold decline is stodgy, and the yield rising channel is obvious whilst the gold channel is nowhere near a declining channel yet. At some point the correct historic inverse correlation logic will reassert itself and become evident. Until that happens markets will remain ‘artificial’ in continuing to camouflage the endemic problems brought about by central bank mismanagement.

US Dollar

The dollar still looks like a breakout to higher levels as a new reverse buy divergence develops. Reverse buy divergence typically could mean one more new high followed by a weakening phase, and this is consistent with signals from competing currencies notably the Euro. It could also mean gold will weaken first followed by strength during the dollar weakening phase.

EuroDollar

The Euro is a virtual opposite to the dollar and still looks like a breakdown to lower levels as a new reverse sell divergence develops. Reverse sell divergence typically could mean one more new low followed by a strengthening phase.

South African Rand

The Rand is set to weaken in a breakout to a new high in the Dollar Rand chart as a new reverse buy divergence develops. As with the dollar, reverse divergence could mean one more new high before dollar weakness sets in to Rand strength thereafter.

Gold

Gold continues to edge toward decision time as it continues sideways towards the triangle apex. It seems to be hemmed in by a band of strong resistance (dark blue) and in accordance with dollar analysis is likely to breakdown first before recovering in a strength phase while the dollar weakens. Key break levels are there and they are evident on the chart at the red and blue markers. There is little support from US miners at the moment as they too move sideways.

Hui : Gold Ratio

The HUI – gold ratio continues to zig-zag sideways although with a negative bias, reflecting gold’s sideways indecision.

GDX US Gold ETF

Like the HUIgold ratio, GDX also continues to zig-zag sideways also with a negative bias, reflecting gold’s sideways indecision.

Silver

Silver maintains its negative bias as it drifts sideways to down. The earlier breakdowns are holding but silver is not leading gold at the moment, and seems to be in limbo as most markets are.

Gold : Silver Ratio

The gold:silver ratio breakouts hold as the ratio moves sideways in limbo. The ratio closed slightly lower which reflects market sentiments at the moment.

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