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Market Analysis 25 Jan 2022

Jan 25th, 2022

Executive summary

US equities decline sharply in more than doubling the declines since the peak in the market, including finally triggering certain technical sell signals. Peculiarly though, certain other markets continue undeterred, such as oil and gold, and it might be that although structural and endemic problems in the market remain camouflaged they may well remain so longer in delaying the final cataclysmic break point until later, perhaps even into 2023.


US Treasury 10 year yield holds the major breakout level and continues to be the precursor towards higher yields and the trend towards higher interest rates. Treasury yields represent a strong rising trend setup which are likely to ignite further yield increases as the period of higher interest rates gathers momentum, and this will have an inevitable effect on the full gambit of all markets including oil and gold.


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 breakdown through the rising channel formation signals major decline prospects as the sell divergence kicks in, propelling prices much lower. This, in the past week, more than doubles declines since the peak in the market, including finally penetrating the 200-Day MA (green).

Brent Oil

The oil price has surprisingly held at elevated levels in a major dichotomy with financial markets.

US Treasuries

US Treasury 10 year yield holds the major breakout level and continues to be the precursor towards higher yields and the trend towards higher interest rates. Although Treasury values are advancing as US equities decline, and if equities decline further and even much further then this could have the effect of reducing Treasury yields, until the mould ruptures and both equities and bonds decline together. But Treasury yields represent a strong rising trend setup which are likely to ignite further yield increases as the period of higher interest rates gathers momentum, and this will have an inevitable effect on the full gambit of all markets such as oil and gold which at the moment seem to be drifting sideways to up.

The Treasury yield and gold comparison chart illustrates yield rising and gold up to 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 nowhere evident as 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 the reverse buy divergence exerts influence. 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 the reverse buy divergence exerts influence. As with the dollar index, reverse divergence could mean one more new high before dollar weakness sets in to Rand strength thereafter.

Gold

Gold edges up through strong resistance (dark blue), but is still in an area of decision as it approaches the triangle apex. However, it is not supported by US miners which could drag gold lower, and other strong impact factors are also influencing gold lower such as Treasury yield strength, a strengthening dollar, and silver which is leading gold lower.

Hui : Gold Ratio

The HUI – gold ratio declines sharply within the bear flag with a tentative breakdown, as it intensifies the negative bias. This indicates lower gold ahead.

GDX US Gold ETF

Like the HUIgold ratio, GDX also declines sharply within the bear flag as it intensifies the negative bias. This also indicates lower gold ahead.

Silver

Silver maintains its negative bias as it drifts sideways to down. Price drops sharply in the latter part of the week as siver starts to lead gold lower.

Gold : Silver Ratio

The gold:silver ratio ratchets up 4.5% from the low during the week as silver begins to lead gold lower. This indicates lower metal prices to come.

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