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Market Analysis 24 Mar 2022

Mar 24th, 2022 No comments

Executive summary

US equity breakdown patterns have created a strong technical buy signal resulting in a more than 7% reversal up, and the beginning of what could be a continuation of the bull market. Price has in fact powered up through all the moving averages and is about to test strong resistance levels at the top of the market. There will now likely be a corrective pullback followed by directional clarity in the next number of weeks. The oscillators are reasonably neutral indicating neither overbought nor oversold conditions as yet.


US Treasury 10 year yield accelerates after a strong breakout which is pushing the US Federal Reserve into rate hikes. The US bond market is therefore increasing its rate of collapse, with money seemingly being switched into equities. This is likely to persist and present indications point to probably 8 US rate hikes during 2022, with the economic cycle turning towards higher interest rates. We seem therefore to still be in the mode of equity and Treasury values inversely correlated before the mould ruptures and both equities and bonds both decline in positive correlation. This could be the indication why a major bear market has in fact not yet started.


The rampant dollar remains elevated as the US rate hike potential rises powerfully, as compared to weak EU rate hike potential. The dollar is also supported by safe haven demand because of the Ukraine invasion, and that does not appear to be changing anytime soon. Gold peaks and declines into consolidation after which it could move either way.

S+P 500

The S+P 500 breakdown pattern has created compound buy divergence which in turn resulted in a more than 7% reversal and the beginning of what could be a continuation of the bull market. Price has in fact powered up through all the moving averages and is about to test strong resistance levels at the top of the market. There will now likely be a corrective pullback followed by directional clarity in the next number of weeks. The oscillators are reasonably neutral indicating neither overbought nor oversold conditions as yet.

US Treasuries

US Treasury 10 year yield accelerates after a strong breakout which is pushing the US Federal Reserve into rate hikes. The US bond market is therefore increasing its rate of collapse, with money seemingly being switched into equities. This is likely to persist and present indications point to probably 8 US rate hikes during 2022, with the economic cycle turning towards higher interest rates. We seem therefore to still be in the mode of equity and Treasury values inversely correlated before the mould ruptures and both equities and bonds both decline in positive correlation.

The Treasury yield and gold comparison chart is finally illustrating yield and gold moving opposite to one another, as they have been doing in the past month. Although the general bias is still in positive correlation, which began about Jun 2021. It will be interesting to note how the trend continues.

US Dollar

The rampant dollar remains elevated as the US rate hike potential rises to 8 for 2022, as compared to 2 for the EU. The dollar is also supported by safe haven demand because of the Ukraine invasion, and that does not appear to be changing anytime soon.

EuroDollar

The Euro, being the virtual opposite of the dollar, remains depressed with weak Treasury yield growth and potential rate hikes well below that of the US. The Russian invasion of Ukraine and the close EU proximity continues to undermine Euro strength, and this is likely to continue.

South African Rand

The Rand is set to weaken as the DollarRand looks set to breakout to higher levels as strong buy divergence develops along with continued dollar strength.

Gold

Gold peaks and declines into consolidation just above support levels, after which it could move either way with the oscillators largely neutral. US miners have been in strong support and have not yet declined in line with gold, which could be bullish. Also, to expect any bearish influence from increased US Treasury yields we will need first to move completely through this period of increased hostile geopolitics.

The gold view over 3 years illustrates the potential of a very bullish ‘Cup & Handle’ breakout if gold now rises to a new high. This will catapult price up by the depth of the Cup to potentially $2500.

Hui : Gold Ratio

The HUI – gold ratio rises through a string of breakouts in a rising wedge pattern which now threatens to all come tumbling down. But the chart formation since Oct 2021 is a very powerful trade setup for now, with numerous activated inverted head and shoulders and an activated Cup & Handle.

GDX US Gold ETF

GDX, like the earlier HUI – Gold ratio, also rises through a string of breakouts in a rising channel pattern which now threatens to all come tumbling down. But the chart formation is a very powerful trade setup for now, with an activated inverted head and shoulders and an activated Cup & Handle.

The GDX Juniors / GDX ratio illustrates the juniors leading the majors down the reducing channel which indicates more miner weakness to come. However, reducing channels do breakout at some point (acting as a bull flag) and when this happens the miners will advance in price.

Silver

Silver peaks and declines into consolidation just above support levels, after which it could move either way with the oscillators largely neutral. Silver is still in non-confirmation with gold in not exceeding the high of Jun 2021, and this is bearish. But the chart pattern is still bullish with numerous activated inverted head & shoulders patterns including bullish Cup & Handle potential with another new high.

Gold : Silver Ratio

The gold : Silver ratio drifts into a triangle apex which could move either way and indicates little at this stage.

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Market Analysis 3 Mar 2022

Mar 3rd, 2022 No comments

Executive summary

US equity breakdowns threaten a major decline, in the wake of the triggered technical sell signals. But partial recovery is in process as dichotomy in the markets continue to lurk in burgeoning commodity prices such as oil, for instance. The world could be on the brink of war as geopolitics erupts, but there is still no panic. In the recovery process the sell signal has turned into a new buy signal as oscillators turn positive. This has the 200-Day moving average on the brink of a breakout, and equity markets appear to be poised between new lows and new highs. The next week or two will certainly be telling.

US Treasury 10 year yield holds the broad strengthening bias with a reversal up from recent weakness, in a precursor towards yet higher yields and the trend towards higher interest rates. This means Treasury values in recent strength start to decrease again as equities continue their revival. We seem to still be in the mode of equity and Treasury values inversely correlated before the mould ruptures and both equities and bonds either rise or fall in positive correlation.

The rampant dollar continues to edge up to new highs, supported by US Treasury yield positive bias and the resultant US Fed intended rate hikes this year. But in the process sell divergence is created by the somewhat weaker oscillator trend and this should result in a weaker dollar trend in due course. The Russian invasion in Ukraine adds to the already strong support for the dollar. This is also consistent with opposite signals from the Euro. But increased geopolitical tensions have catapulted the gold price because of equally powerful safe-haven investment demand. Much depends on the next week or two.

S+P 500

The S+P 500 breakdowns threaten a major decline, in the wake of triggered sell divergence at the apex. But partial recovery is in process as dichotomy in the markets continue to lurk in burgeoning commodity prices such as oil, for instance. In the recovery process the sell divergence has turned into a new buy divergence as the oscillators turn positive. This has the 200-Day MA on the brink of a breakout (green circle), and equity markets appear to be poised between new lows and new highs. The next week or two will certainly be telling.

To wit, the dollar price of Brent oil roars to a new high in a major dichotomy with financial market declines. This admittedly is as a result of geopolitical eruption in the Russian – Ukraine fiasco causing an oil shortage scare, but nevertheless a near impossibility in collapsing financial markets.

US Treasuries

US Treasury 10 year yield holds the broad strengthening bias with a reversal up from recent weakness, in a precursor towards yet higher yields. This means Treasury values in recent strength start to decrease again as equities continue their revival. We seem to still be in the mode of equity and Treasury values inversely correlated before the mould ruptures and both equities and bonds either rise or fall in positive correlation.

The Treasury yield and gold comparison chart illustrates yield in rising mode and gold likewise in rising mode. This therefore represents a continued breakdown of the correct historic inverse correlation of these two elements, which began about Jun 2021.

Just a reminder how the relationship between Treasury yield and the dollar price of gold is traditionally inversely correlated, and how since Jun 2021, it has gone haywire because of central bank mismanagement and accentuated now with increased geopolitical tensions and increased safe-haven asset requirements.

US Dollar

The rampant dollar continues to edge up to new highs, supported by US Treasury yield positive bias and the resultant US Fed intended rate hikes this year. But in the process sell divergence is created by the somewhat weaker oscillator trend and this should result in a weaker dollar trend in due course. The Russian invasion in Ukraine adds to the already strong support for the dollar.

EuroDollar

The Euro is a virtual opposite of the dollar and it achieved new lows which in the process created buy divergence with the somewhat more elevated oscillator trend. Rampant dollar, gold, oil, and the Russian war threat continues to undermine Euro strength.

South African Rand

The Rand is set to weaken as the DollarRand looks like it could breakout to higher levels. There is already a mini-breakout in the currency pair, and only a reversal of Russian war-mongering in Ukraine would lead to a weaker dollar and stronger Rand.

Gold

Gold spikes up through a number of breakouts in the glow of increased geopolitics which has driven safe-haven investment demand. But it may have already peaked and once it reverses it does so rapidly. US miners are in somewhat subdued support and have created bearish patterns in the process. Also, to expect any bearish influence from increased US Treasury yields we will need first to move completely through this period of increased hostile geopolitics.

Hui : Gold Ratio

The HUI – gold ratio rises to subdued breakouts within bearish formations of flag and wedge which is likely to project forward in lower values rather than higher.

GDX US Gold ETF

GDX, like the earlier HUI – Gold ratio, also rises to subdued breakouts within bearish formations of flag and wedge which is likely to project forward in lower values rather than higher. One of the additional reasons for this is the non-confirmation between GDX Juniors and GDX majors explained in the next chart.

GDX Juniors has a similar chart to GDX majors except in not achieving a new high after the previous high in Nov 2021, which GDX majors achieved. This creates a non-confirmation between the two with reasonably strong bearish implications.

Silver

Another non-confirmation with bearish implications is between silver and gold. Silver does not achieve a new high above the high of Jun 2021 which gold does, pointedly. Silver only achieves mild breakouts within what could be a bear flag.

Gold : Silver Ratio

The gold : Silver ratio closes lower as it drifts sideways to down in reflecting the higher gold price. This is a strong gold breakout but the ratio does not break down, as one would expect in a higher metal prices environment.

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