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Market Analysis 3 Mar 2022

Mar 3rd, 2022

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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