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Market Analysis 24 Mar 2022

Mar 24th, 2022

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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