Market Demons

Executive summary

US markets had a belated Xmas rally of gigantic proportions in a miracle dead cat bounce that lifted equities 5% yesterday. This was attributable to various issues including some noise emitted from the White House suggesting the US Fed Chairman will not be fired, and single day records were broken. But, the die is cast and equity wave structures continue to unfold into a bear market of equally gigantic proportions that will eventually dwarf much that has gone before.

Using the Dow Jones Industrial Average as a proxy for US equities (and indeed world equities) it can be seen that a variety of different impact factors are propelling the index to yet much lower levels. These include Elliott Wave theory, activation of a strong H&S pattern, and a strong negative divergence, all as can be seen in the charts that follow. Also, the countertrend rally in the US bond market is now probably completed with the long term bond bear market likely to resume very soon.

The US$ index has begun a multi-month decline phase since recent peaks, albeit still sluggishly, just as the similar (but in reverse) gold multi-month rally continues to gain momentum. The gold rally is gathering pace which has been energized by disproportionate increases in the silver price which has erased the long-standing non-confirmation against gold which now aligns both metals.

US$
The US$ index has begun declining after recent peaks, but is still doing so sluggishly. In moving largely sideways it is in fact even starting to construct a bear flag, as a prelude to breaking lower. The chart structure, together with corroborating data such as still extremely positive investor sentiment and bearish Cots data, indicates a multi-month dollar decline in the period ahead. The oscillators though are turning up in denial.

One of the powerful motivators for dollar weakness is the extreme investor optimism and the bearish Cots data which reflects in the continued wide dilation in the graphic (red circles). Also, finally, the dollar decline is becoming slightly more evident.

One of the powerful motivators for dollar weakness is the extreme investor optimism and the bearish Cots data which reflects in the continued wide dilation in the graphic (red circles). Also, finally, the dollar decline is becoming slightly more evident.

The 12 month daily chart illustrates the principal propellant for dollar weakness is the negative divergence between price and MACD. This is likely to drop dollar value well below 200-Dema (probably towards $93.80), despite the oscillators in denial.

The longer term 3 year weekly chart illustrates dollar value slowly beginning to roll over with the support of the oscillators turning down.

Japanese Yen
The Yen strength cycle is gaining momentum, having penetrated both the diagonal supports (red) decisively. This, by definition, is due to a weaker US$ and by implication a stronger gold price. The Yen has moved to it’s strongest in nearly 4 months, in powering through 200-Dema, and is now going to test support (red) between 108-110 Yen to the dollar.

US Treasuries
US bonds continue to collapse into a long term bear market but yields have continued to correct down in the short term counter-trend correction. In accordance with Elliott Wave, it can be seen the yield decline is now probably complete, having completed a 5 wave (i) to (v) down to 2 c (circle). This establishes 1-2 which will now propel te stronger wave 3 up as yields increase in a declining bond market.
From this point US bonds will resume their collapse into a long term bear market, and both oscillators are bottoming in support of this.

US Treasuries and Gold
The relationship between gold and the US Treasury 10 year price is reflected in the chart below with rising bias in strong gold / weak bond price, and reducing bias in weak gold / strong bond price. The chart illustrates that the relationship has bottomed (red line), as it moves up to test the H&S neckline. This reflects the stronger gold price and weaker bond price, together with both oscillators rising in support.

Gold
Gold continued to strengthen this week as the rally gains momentum. But it closed yesterday on a Doji candle which reflects indecision and could impair further gains in the ultra short term. The oscillators are overbought which indicates stalling in gold price gains, despite all the contra-indications such as weaker dollar and bullish gold Cots data.

The gold COTs data indicates the start of dilation but it is still early days and the gold price continues to rally.

The gold rally gains momentum in a breakout through the key level of $1269, having penetrated the diagonal resistance line. The oscillators are beginning to top out although momentum will probably carry the day, given all the impact factors.

South African Rand
The reducing wedge pattern has proved quite powerful with the Rand weakening to break out and then consolidate above the pattern. The struggle continues between expected dollar weakness and extending the consolidation above the reducing wedge pattern even further up. The Slow Stochastic is overbought but the MACD appears not so quite yet. Price closed at $14.55, just below the next key ZAR weakness level at $14.70.
So, whilst expected dollar weakness will lead to Rand strength, South African political and economic weakness will tend to retard any Rand strength, leaving the currency above the reducing wedge pattern.

HUI / Gold Ratio
The ratio continues to gain momentum despite breakbacks, which means that US miners are moving up slightly faster than the gold price. The next key breakout level at 0.1291 is very close and both oscillators have turned up in support.

HUI Index
The HUI index itself is far more positive than the HUI / Gold ratio, with the miners not having to compete against the gold price. The positive bias has the next key breakout levels close at hand, and the oscillators are turning up in support.

GDX US miners ETF
The GDX chart is similar to the HUI Index chart except it is even more positive. It seems as if the US miners may well catapult up if these patterns persist.

DUST US Gold Miners Bear Index
The Dust chart has similar commentary, except in the opposite direction being a US miners bear index. The downside bias in the chart is gaining momentum despite the breakbacks, having penetrated the diagonal support (red). The oscillators are bottoming and therefore further increase in the chart is possible.

Silver
Silver has a breakout both through the key level of $14.95 and the diagonal resistance line. Silver has erased the long-standing non-confirmation against gold which now aligns both metals, in a very positive move for the whole precious metals complex. The breakout line at $14.95 has developed into a powerful resistance line, comprising many breakout attempts, and it has now been penetrated decisively and will act as a propellant. The next key breakout levels are close at hand on either side of the resistance zone at $15.25 and $15.71. The oscillators are overbought however and may act as a retardant.

The silver COTs data remains very positive although the convergence pattern is beginning to dilate slightly. Because it is still early days the silver rally is nevertheless gaining momentum.

Gold : Silver Ratio
Silver is in the early stages of beginning to outperform gold, which is positive for the whole precious metals complex, and this is reflected in the chart with a breakout through the rising wedge pattern. The oscillators are turning down in support, and the potential top is increasingly looking like an actual top.

General Equities
The Elliott Wave analysis of the Dow short term chart illustrates the potential for further declines. The ‘dead cat bounce’ in the Dow yesterday could be the rise to 4 to be followed by the decline to 5, to complete the 5 wave down to (3). Or, that wave 3 is still in progress which will generate a much lower (3).

The corrective ABC up will only engage once these declines are complete.

The Dow 12 months chart illustrates the major negative divergence between price and MACD which is the main driver in propelling the Dow down strongly. The partial recovery yesterday is a ‘dead cat bounce’ as part of the overall decline process.

The large H&S pattern developed over the last 9 months has been activated, and this is likely to propel the Dow down by 3000 points, being the height of the head. This will drop the Dow down through the next big region of support around the region of 22000 to the next region below that around 21000. This will test 200-Wema (green).

Executive summary

The US Federal Reserve pronounced yesterday in a more hawkish mode than the markets anticipated, and the rate was hiked with two more indicated for 2019. This activated further declines in US equities as the bear market continued to unfold more aggressively. The approach to the Fed announcement attracted higher levels of hopeful anticipated dovish expectation which finally turned to despair.

Wave structures in the key US equity indices now indicate strong potential for further sharp declines down to new lows as sequential support levels are tested lower down. Using the Dow Jones Industrial Average as a proxy for US equities it can be seen that a variety of different impact factors are propelling the index in the short term to much lower levels. These include Elliott Wave theory, activation of a strong H&S pattern, and a strong negative divergence.

The US$ index has begun a multi-month decline phase since recent peaks, just as the similar (but in reverse) gold multi-month rally continues to gain momentum. This is discussed in more detail at the start of the Gold section. As with equities, gold and all it’s associated elements and charts have been propelled up strongly in anticipation of a more dovish US Fed pronouncement and consequently reacted negatively to the actual more hawkish announcement.

Two weeks ago we looked at the start of the next gold bull market, and today we look at other factors that are likely to drive the gold price in 2019: All at the start of the Gold section.

 

US$

The US$ index has begun declining after recent peaks, and has confirmed a top with consecutive closes below 10-Dema. The chart structure, together with corroborating data such as extreme positive investor sentiment and bearish Cots data, indicates a multi-month dollar decline in the period ahead. The oscillators are declining in support of this, although shadows on the last 2 candles suggest some upward movement is still possible first.

 

 

 

One of the powerful motivators for dollar weakness is the extreme investor optimism and the bearish Cots data which reflects in the continued wide dilation in the graphic (red circles). Despite this, a solid decline phase has yet to start.

 

 

 

The 12 month daily chart illustrates the prominent negative divergence between price and MACD which is another powerful indicator of the start of a multi-month decline phase. The earlier indecision, apparent in the Slow Stochastic, has triggered into decline by penetrating the black diagonal support line. The drop in dollar value could eventually well penetrate well below 200-Dema (probably towards $93.80).

 

 

 

The 3 year weekly chart illustrates the start of declining through the diagonal support from the cluster of indecision below resistance. Both oscillators are topping out in support of this.

 

 

 

Japanese Yen

The Yen has started a new strength cycle in penetrating the diagonal supports (red). This, by definition, is a weaker US$ and by implication strengthening for gold. The Yen has moved to it’s strongest in 2 months and which mirrors the multi-month gold rally. The Yen could well strengthen to 200-Dema and beyond, probably toward 111 to the dollar, and the oscillators are declining in support of this.

 

 

 

US Treasuries

US bonds continue to collapse into a long term bear market but yields have continued to correct down in the short term counter-trend correction. In accordance with Elliott Wave, it can be seen the yield decline is moving down to (v) to simultaneously complete an abc in establishing the 1-2. Yield will be turning up into wave 3 once 2 (v) is confirmed, which is very close. From this point US bonds will resume their collapse into a long term bear market. Both the oscillators are bottoming in support of this.

 

 

 

Gold

Continuing on from our series of 2 weeks ago, we examine what other factors are likely to drive the gold price in 2019? These slightly longer term thoughts are adapted mostly from original thoughts by Alasdair Macloed at GOLDMONEY.

Macro-trends affecting Gold

Some additional basic elements include:

• Developments affecting the US$;
• Continued evolving geopolitics;
• Economic outlook;
• Relationship between gold and fiat money and resulting inflation;
• Supply and demand for gold;
• Activities in the ‘paper gold’ market;

 

All in all, 2019 will probably be good for gold.

 

Developments affecting the US$

Gold has had to contend with a strong dollar for much of 2018, driven by the US Fed interest rate hike cycle. Although the rate hike cycle may be ending soon it has enjoyed the imbalance of no rate hikes in Japan and the EU, accentuating US$ strength. Banks and hedge funds have profited massively from this, but the position is now starting to reverse in what is likely to unwind towards a weaker dollar and higher gold price.

 

Geopolitics

The transfer of gold from West to East continues with significant increases in Russia, India, and China (plus some others). Russia has virtually replaced it’s US$ foreign reserves with gold, and is in a position to do away with the dollar entirely for its energy export payments, or even to link the rouble to gold. China, as the world’s biggest oil importer, has launched it’s oil contract denominated in yuan exchangeable into gold. This is in the early stages of threatening Petro-dollar hegemony and will eventually enable avoidance of receiving dollars entirely. It has also now led to the creation of a number of new Asian gold exchanges and associated substantial gold storage vaults.

This is a direct challenge to the dollar as a reserve currency, and likely to be attractive to oil suppliers, such as Iran, seeking to circumvent use of the dollar and accumulate gold instead.

Wars in the Middle East and Ukraine are now matched by developing trade tariff wars as Donald Trump, true to his election campaign promises to make America great again, is using tariffs in directing policy towards bankrupting China which is seen (correctly) as the greatest economic threat to America. The objective is to impede China’s technological development as it creates a sophisticated economy with a technological capability that is arguably overtaking that of the US. This became visible with the detention of the Huawei CFO, escalating the already deteriorating relations between America and China. Huawei is the world’s leading developer of 5G mobile technology, which will make internet broadband redundant and will become widely available from next year. This has the potential to escalate the tariff war.

China will target financial weapons of her own at the US, including massive holdings of US treasuries which could be sold with equally massive consequences for the US and specifically the dollar. Also, her use of physical gold to insulate China from the fall-out of a collapsing dollar, to protect the yuan as well as limiting the rise of Chinese interest rates.

 

Economic outlook

The trade tariff war today is a re-run of 1929. Then, as now, America ‘ruled the world’ and decided on trade tariffs after the Smoot-Hawley Tariff Act was passed by Congress. The New York Stock Exchange crashed and introduced ‘The Great Depression’ to the world. The likely consequences for today are obvious, in collapsing the financial markets, the banking system, and probably the international monetary system as well, given that we have had 90 years of gross central bank mismanagement since then.

There are other core reasons for market weakness as well. Global economies are at the end of a strong expansionary phase and are at the start of contraction with astronomic debt levels and long term rising interest rates. This toxic cocktail will evolve into the mother of all financial market crises, and it has already started.

 

Relationship between gold and fiat money and resulting inflation

Central bank gold reserves of 33,757 tonnes are worth $1.357 trillion at current prices, according to the World Gold Council. Global fiat money is estimated to total about $90 trillion, which suggests there is 66 times as much in global money as there is gold to back it, roughly. In turn, this suggests a gold price of $80 000.00 based on equitable currency convertibility. This relationship continues to widen as the global monetary base continues to increase.

During the great depression, dollar prices of raw materials and commodities declined heavily, bankrupting everyone involved world-wide. Thus the purchasing power of the dollar increased, because it acted as a gold substitute. But now, there is no convertibility between the dollar and gold at all, so the effect of a global economic depression is bound to see the gulf between the dollar and gold widen, as central banks expand the quantity of money in an attempt to fight recession and keep their governments solvent.

Gold is already close to all-time lows, relative to the quantity of fiat money.

 

Supply and demand for gold

Demand for physical gold consistently exceeds mine supply. Central banks plus Chinese and Indian private sector demand account for 3,344 tonnes annually, which is the same as global mine supply. Net demand from the rest of the world is supplied from existing above-ground bullion, with the most identifiable swing-factor being ETF demand.

ETF demand acts typically as a contrary indicator of future price trends which fits in with market theory. Investor psychology has it that investors are at best trend-chasers, investing most heavily at market tops and liquidating positions at price lows. And right now the gold price is low with ETF outflows peaking.

 

Paper markets for gold

The technical position in the paper markets looks favourable, with close to record levels of bearishness, and an established pattern of Gold bottoms at the end of the year with rallies to follow.

Note the blue arrows on the 5 year gold chart below.

 

 

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Our normal gold analysis follows.

Gold continued to edge up this week in a multi-month rally with the start of dollar weakness into a similar multi-month decline. The gold rally continues to gain momentum although there was some over-reaction in leading up to the US Fed rate hike and gold has declined slightly which is not evident in the chart (because of timing). The oscillators are rising in accord with this momentum.

 

 

 

The gold COTs data indicates the beginning of a slight dilation of the convergence, and correctly the gold rally continues unabated.

 

 

 

The gold rally momentum is maintained despite the US Fed rate hike, and the 12 month chart illustrates the next key breakout level at $1269.

 

 

 

South African Rand

The ZAR weakened to breakout from the reducing wedge and consolidate into a cluster just below resistance. This is now between the key weakness and strength levels evident on the chart. Expected dollar weakness will lead to Rand strength, although South African political and economic weakness will tend to retard any Rand strength, leaving the currency above the reducing wedge pattern.

 

 

 

HUI / Gold Ratio

The ratio continued to gain momentum into the US Fed rate hike, with the market anticipating a more dovish Fed. Reality set in after the Fed announcement and the breakout turned into a strong breakback, with the next key breakout level remaining at 0.1291. Both oscillators have turned down and more ratio weakness is possible.

 

 

 

GDX US miners ETF

The GDX chart is similar to the HUI/Gold ratio with similar commentary, except it appears to be slightly more positive. GDX also continued to gain disproportionate momentum into the US Fed rate hike, with the market anticipating a more dovish Fed. In fact the key breakout level of 20.55 was penetrated. Reality set in after the Fed announcement and the breakout turned into a strong breakback, with the next key breakout level now much higher at 21.50. Both oscillators have turned down and more weakness is possible.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart has similar commentary, except in the opposite direction being a US miners bear index. The downside bias in the chart has been somewhat adjusted by the US rate hike, but overall remains positive. The oscillators are bottoming and therefore further increase in the chart is possible.

 

 

 

Silver

Silver continued to edge up this week and is likely to soon start outperforming gold. However, like gold, there was some over-reaction in leading up to the US Fed rate hike and silver has declined slightly which is not evident in the chart (because of timing). It continues to form a quadruple top at the key level of $14.95, closing at $14.82. Silver has a strong consolidation base below this level which will act as a powerful propellant as and when breakout occurs. The oscillators are rising in accord with this momentum.

 

 

 

The silver COTs data remains very positive with a continued bullish convergence pattern indicating silver strength and likely gain in rally momentum.

 

 

 

We look again at the interesting US Silver Miners vs Dow ratio.  This illustrates the balance between silver miners and general equities and indicates a strong move up off the bottom. IE Silver miners up and/or Dow down.

The oscillators are bullish in support.

 

 

 

Gold : Silver Ratio

Silver is in the early stages of beginning to outperform gold, which is positive for the whole precious metals complex. The ratio is dithering somewhat but maintains the powerful top formation which promises a breakout through the bottom of the rising wedge formation.

 

 

 

General Equities

The Dow Jones wave structure now indicates strongly the potential for further sharp declines soon. The Elliott Wave patterns illustrate completion of the (1)-(2), ABC correction, and 1-2, all leading to the powerful wave 3  down. The decline from 2 is part of an impulse 5 wave structure that will continue down to new lows with the longer and stronger wave 3 in progress.

 

 

The Dow 12 months chart illustrates the major negative divergence between price and MACD which is the main driver in propelling the Dow down strongly. The key breakdown level in the region of 24 400 has been penetrated decisively, as have all the low points created during 2018.

 

 

 

The large H&S pattern developed over the last 9 months has been activated, and this is likely to propel the Dow down by 3000 points, being the height of the head. This will drop the Dow down through the next big region of support around the region of 22000 to the next region below that around 21000. This will test 200-Wema (green).

 

 

 

VIX (Volatility Index)

A fascinating aspect of this particular market decline is that virtually nobody is concerned and virtually everybody believes this is all part of a continuing bull market. Volatility is moving up but seemingly in an orderly fashion. There is now a cluster developing at a higher level, as the bear market begins to bite, but at the same time there appears to be still no panic or raw fear. The market is virtually unaware of the impending collapse ahead.

 

 

 

 

 

 

 

Executive summary

Using the Dow Jones Industrial Average as a proxy for US equities which are in the early stages of a new bear market, the wave structure now indicates strongly that the potential for further sharp declines is likely soon. Also, that these declines should continue down to new lows below those achieved earlier this month. The Dow has constructed numerous 5 wave advances, inter-mingled with a completed ABC correction leading to a new 5 wave impulse decline with the longer and stronger wave 3 about to engage.

The US$ index peaked in Nov at $97.693 and has created a triple top at that level. Corroborating data, such as extreme positive investor sentiment and bearish Cots data, indicates a multi-month period of dollar decline in the period ahead. This is now likely to commence, just as the similar (but in reverse) gold multi-month rally has already commenced during the period of dollar strength leading up it’s peak and triple top. This delayed start to the dollar decline should energise and catapult gold up somewhat as it develops. Much should evolve out of the US Fed Dec rate hike next week, together with associated commentary and interpretation.

 

US$

The US$ index peaked in Nov 2018 at $97.693 and created a triple top at that level over a 4 week period. The dollar still has to confirm a top technically, by closing below 10-Dema consecutively, and therefore there is no likelihood of declining until that happens. But, corroborating data, such as extreme positive investor sentiment and bearish Cots data, indicates a multi-month dollar decline in the period ahead. The oscillators are mixed and somewhat directionless which appears to agree with a period of dollar indecision.

 

 

 

One of the powerful motivators for dollar weakness is the extreme investor optimism and the bearish Cots data which reflects in the continued wide dilation in the graphic (red circles). This is a powerful motivation for a drop in dollar value, which has still to happen.

 

 

 

The 12 month daily chart illustrates the prominent negative divergence between price and MACD which is another powerful indicator of the start of a multi-month decline phase. Indecision is also apparent in the dithering Slow Stochastic as well as the need to still close below the black diagonal support. The drop in dollar value could eventually well penetrate well below 200-Dema (probably towards $93.80).

 

 

 

The 3 year weekly chart illustrates the peak cluster of indecision just below the resistance zone. Once the diagonal support is penetrated dollar value could well drop below 50-Wema towards the bottom of the support zone. Both oscillators are topping out in support of this.

 

 

 

US Treasuries

US bonds continue to collapse into a long term bear market but yields have continued to correct down in the short term counter-trend. Yield on the benchmark US 10 year treasury (1 year daily chart) blipped up slightly to close at 2.91%, very close to the diagonal supports (red) and below 200-Dema. Both the oscillators are bottoming in support of higher yields in line with the main trend.

 

 

 

US Yield Curve

The US Treasury yield curve continues to trend lower toward zero and beyond, indicating US reccession at some stage during 2019. It closed at 1.05 yesterday with the last lap to zero, when it is said to ‘invert’, lying dead ahead. The last inversion occurred in 2006 – 2007 just before the Global Financial Crisis.

 

 

 

Gold

The gold multi-month rally continued to edge up this week despite a continued strong US$ index, which continues to delay in the start of it’s expected multi-month decline. As the gold rally gains momentum it has now achieved 4 consecutive closes above 200-Dema, and in so doing has increased the depth of it’s support base by closing above the previous high during Oct. The oscillators are rising in accord with this momentum.

 

 

 

The gold COTs data indicates the beginning of a slight dilation of the convergence, and correctly the gold rally continues unabated.

 

 

The gold rally gains momentum and the 12 month chart illustrates the breakout through the key level of $1246, with the next key breakout level now at $1269. Penetration of 200-Dema was last achieved during Jun 2017.

 

 

 

South African Rand

The ZAR weakened to breakout from the reducing wedge only to strengthen back into the pattern, leaving the key strength and weakness levels at $13.53 and $14.60 respectively. Although expected dollar weakness will lead to Rand strength, South African political and economic weakness will tend to retard any Rand strength, and the reducing wedge pattern may yet be penetrated through the top diagonal again (ZAR weakness).

 

 

 

HUI / Gold Ratio

The ratio continues to gain momentum and has a breakout through the key level at 0.1245, leaving the next key breakout level very near at 0.1291. Both oscillators are rising in support.

 

 

 

GDX US miners ETF

The GDX chart is similar to the HUI/Gold ratio with similar commentary, except it appears to be slightly more positive. GDX continues to gain momentum and has a breakout through the lower key level at 19.95, and very nearly through the higher one at 20.55 as well.

 

 

 

The longer term weekly 3 year chart illustrates the gaining momentum off the support diagonal (red) towards the earlier range-bound region, which is now quite close. Both oscillators are rising in support.

 

 

DUST US Gold Miners Bear Index

The Dust chart is even more positive with similar commentary, except in the opposite direction being a US miners bear index. The downside bias is accelerating with both key breakout levels penetrated to a new low. The oscillators are mixed with the Slow Stochastic turning up and the MACD dropping.

 

 

 

Silver

Silver improved markedly again this week gaining momentum to form a near quadruple top at the key breakout level at $14.95, closing at $14.85.  Silver has a strong consolidation base below this level which will act as a powerful propellant as and when breakout occurs. Both oscillators are rising in support.

 

 

 

The silver COTs data remains very positive with a continued bullish convergence pattern indicating silver strength and likely gain in rally momentum.

 

 

 

Gold : Silver Ratio

Silver is in the early stages of beginning to outperform gold, which is positive for the whole precious metals complex. The ratio improved again this week to close at 84.17 and the potential top is beginning to look like an actual top. Also, the close is a micrometer over the bottom parameter of the rising wedge pattern and is beginning to look like the start of a breakout. Both oscillators are dropping in support of this.

 

 

General Equities

The Dow Jones wave structure now indicates strongly that the potential for further sharp declines is likely soon. Also, that these declines should continue down to new lows below those achieved earlier this month. The Dow has constructed numerous 5 wave advances, inter-mingled with a completed ABC correction leading to a new 5 wave impulse decline with the longer and stronger wave 3 about to engage.

 

 

 

The Dow 12 months chart illustrates the major negative divergence between price and MACD which is the main driver to eventually propel the Dow down strongly. The key breakdown level is in the region of 24 400 which is the tipping point for much lower prices.

 

 

 

The first waves down in a new bear market are underway, and as this develops it will activate a developing H&S pattern which will propel the index down another 3000 points, being the height of the head projected down below the neckline. This will easily penetrate the support base and drop the index down towards 200-Wema.

 

 

 

Executive summary

US equities are in the early stages of a new bear market after peaking in early Oct 2018 and which enjoys numerous counter rallies from comments made by the likes of Jerome Powell or Donald Trump designed to keep equities lofted. But, socio-economics are in a down cycle and the interest rate cycle has turned up which are the bedrock foundations of powerful forces that dictate the fortunes of capital markets which are in a serious downturn for the foreseeable future. This is also in accord with the US bond market which started to turn down as early as mid-2016 into a long term bond bear market.

The US$ index peaked in Nov and is in the early stage of a multi-month decline, in line with US Fed comments indicating an end to the rate hike cycle soon, which is adding impetus to a gold multi-month rally. The dollar enjoys extreme bullish investor sentiment plus bearish Cots data while gold suffers extreme bearish investor sentiment plus bullish Cots data, which all adds powerful credence to the next dollar cycle being weak and the next gold cycle being strong.

The next gold bull market will be stratospheric because of the potential collapse in the capital markets and eventually the international monetary system itself. It is close and getting closer. Consequently, the narrative below under the heading of Gold describes in some detail some of the underlying impact factors that will finally launch the next gold bull market.

 

US$

The US$ index is in the early stage of a multi-month decline, after it’s recent 5 wave advance to peaks in Nov and the start of the down trend after that. But it still needs to confirm a top with consecutive closes below 10-Dema and it also closed on a Dragonfly Doji candle yesterday which indicates indecision. The oscillators are also mixed with some more short term indigestion likely before declining further.

 

 

 

One of the powerful motivators for dollar weakness is the extreme investor optimism and the bearish Cots data which reflects in the continued wide dilation in the graphic. This is a powerful motivation for a drop in dollar value.

 

 

 

The 12 month daily chart illustrates the prominent negative divergence between price and MACD which is another powerful indicator of the start of a multi-month decline phase. Indecision is also apparent in the dithering Slow Stochastic as well as the need to still close below the black diagonal support. The drop in dollar value could eventually well penetrate well below 200-Dema (probably towards $93.80).

 

 

 

The 3 year weekly chart illustrates the peak cluster of indecision just below the resistance zone. Once the diagonal support is penetrated dollar value could well drop below 50-Wema towards the bottom of the support zone.

 

 

 

Japanese Yen

The Yen has started a new strength cycle which by definition is weakening for the US$ and by implication strengthening for gold. It spiked through both 10- and 50-Dema to the diagonal support line (red) which it now needs to penetrate. The Yen could well strengthen to 200-Dema and beyond, probably toward 111 to the dollar. The oscillators are set to drop in support of this.

 

 

 

US Treasuries

US bonds continue to collapse into a long term bear market but yields have continued to correct down in the short term. Yield on the benchmark US 10 year treasury (1 year daily chart) closed down at 2.91%, very close to the diagonal support (red) and even penetrating 200-Dema. Bothe oscillators look set to bottom in support of higher yields off the diagonal support line.

 

 

 

US Yield Curve

The US Treasury yield curve continues to trend lower toward zero and beyond, indicating US reccession at some stage during 2019. It closed at 1.04 yesterday with the last lap to zero, when it is said to ‘invert’, lying dead ahead. The last inversion occurred in 2006 – 2007 just before the Global Financial Crisis.

 

 

 

Gold

The next gold bull market will be stratospheric because of the potential collapse in the capital markets and eventually the international monetary system itself. It is close and getting closer, but when will it finally begin?

There are numerous improving market and economic developments which are positive for Gold which is positioned ever more so to start the next gold bull market. But the ignition triggers are not quite ready yet, which means the bullish launch platform still needs further development although completion is getting close. Gold price behaviour is dependent on many things, and history shows that some of them, like those below, actually need to breakout before the next gold bull market can start:

• US Federal Reserve policy shifts;
• Shape of the US yield curve;
• Outperformance against general equities;
• Outperformance against foreign currencies, given that gold is mainly quoted in US$;

 

US Federal Reserve policy shifts

The unfolding bear market in equities (and the already 2½ year bear market in US bonds) had the US Fed indicate last week that the rate hike cycle may end soon, with the market now expecting no more than another 2 rate hikes. This is good news for gold which thrives in a rate cutting environment, which by definition has not started yet. It will of course accelerate as the equity market collapse gains momentum.

 

Shape of the US Yield curve

The yield curve reflects the state of the US economy including the stock market and the health of it’s companies, and therefore leads US Fed policy. The stronger the economy the tighter Fed policy will be, and vice versa. As the yield curve flattens and reaches zero, it is said to ‘invert’, as the US economy moves into recession or worse. This is where it is headed at the moment which predicts weak equities and by definition gold outperformance of equities. It is not a reflector of gold performance per se, as at gold peaks in 1980 it was flat and in 2011 it was very steep.

 

 

Outperformance against General Equities

$Gold needs to breakout against long term US equities and, in this example against the 400 day moving average in the gold / NYSE index, it is preparing to do so.

 

 

It has actually already achieved a breakout against the world equities (excluding US) index and the Emerging markets index, in penetrating the long term 400 day moving average.

 

 

 

So, the US stock market is key as it will dictate US Fed policy. That could be taken off the table as the US market collapses into the current bear market, which will push the US Fed into an earlier rate cutting cycle. Or, even earlier still as the market begins to discount the start of a rate cutting cycle.

Observe the Dow and the potential to now push down through the 400 day MA with very little support in the next 5000 points decline.

 

 

 

Outperformance against Foreign Currencies

It also needs to breakout against foreign currencies, given that gold is usually quoted in US$. In this case it is contesting a confluence of resistance at the 200 and 400 day MAs before it can break free to test the overhead diagonal resistance trendline.

 

 

 

So, gold is preparing for the start of the next bull market which is closing in fast. But some have it that gold is currently enjoying only a corrective wave up to be followed first by another serious decline toward the 1000 to 900 region, before the start of the bull market. Maybe, or maybe not!!! Watch this space.

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Our normal gold analysis follows.

The gold multi-month rally received a mini-boost this week and spiked up into the resistance zone. Extreme investor pessimism and positive Cots data remains and this will generate further energy and momentum gains, especially as the dollar weakens. The oscillators are rising in accord with this.

 

 

 

The gold COTs data continues to indicate the bullish convergence which will support higher gold prices and, by definition, also a weaker dollar.

 

 

 

The 12 month chart illustrates the breakout through the diagonal resistance line. It closed at $1241.10 as it gets ever nearer to the key breakout level at $1246.

 

 

 

South African Rand

The US$ / ZAR currency has formed a reducing wedge pattern with price closing on 2 consecutive Engulfing candles (black) which technically indicates a breakout up (US$ strength / Rand weakness). Conversely, expected dollar weakness will lead to Rand strength first, although South African political and economic weakness will tend to retard any Rand strength. Key levels are now: ZAR strength $13.53, and ZAR weakness $14.60. The oscillators are turning up in support of Rand weakness.

 

 

 

HUI / Gold Ratio

The ratio has maintained a positive bias with 2 consecutive closes above 10-Dema. The lower of the 2 key breakout levels at 0.1245 beckons next with the ratio closing at 0.1204 with both oscillators beginning to turn up in support.

 

 

 

GDX US miners ETF

The GDX chart is similar to the HUI/Gold ratio with similar commentary, except it appears to be slightly more positive. The lower of the 2 key breakout levels at 19.95 beckons next (very close) with the ETF closing at 19.60 and both oscillators rising in support.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart is equally similar with similar commentary, except in the opposite direction being a US miners bear index. The downside bias is accelerating and closed at 30.60 which is very close to the higher of the key breakout levels at 29.50. Both oscillators are supportive and turning down.

 

 

 

Silver

Silver improved markedly this week and has a breakout through both diagonal resistance (blue line) and the lower of the 2 key breakout levels at $14.53. The higher and much stronger key breakout level at $14.95 now beckons and both oscillators are rising in support.

 

 

 

The silver COTs data remains very positive with a continued bullish convergence pattern indicating silver strength and likely gain in rally momentum.

 

 

 

Gold : Silver Ratio

Silver is now in the early stages of beginning to outperform gold, which is positive for the whole precious metals complex. The ratio improved to 84.77 and a potential top is forming with the potential likely hood of a breakout through the bottom of the rising wedge pattern. Both oscillators are dropping in support of this.

 

 

General Equities

The Dow Jones dropped 750 points yesterday with more to come in the final approach run to the key breakdown level of 24 400. The oscillators are turning down in support of this.

 

 

 

The Dow 12 months chart illustrates the major negative divergence between price and MACD which is the main driver to eventually propel the Dow down strongly.

The key breakdown level is at 24 400 which is the tipping point for much lower prices, and the oscillators are turning down in support of this.

 

 

 

The first waves down in a new bear market are underway, and as this develops it will activate a developing H&S pattern which will propel the index down another 3000 points, being the height of the head projected down below the neckline. This will easily penetrate the support base (solid red) and drop the index down towards 200-Wema.

 

 

 

Executive summary

US equities rallied strongly yesterday (Wednesday 28 Nov) because a dovish Jerome Powell of the US Federal Reserve indicated a possible end to the rate hike cycle very soon. Using the Dow Jones Ind. Ave. Index as a proxy for US equity behaviour, it would seem, although the rally had started 2 days earlier, investors managed to push the market up some 600 points on the day to levels which are likely to fluctuate within a range before terminating the countertrend advance and dropping into the next wave down to new lows in the ongoing bear market.

There is still virtually no acceptance or understanding of the current bear market in equities and this is why there is still no panic whatsoever. Much of the ‘big money’ in trading volumes is driven by robot computer algorithms and margin debt:

• Algorithms are programmed to ‘buy the dips’ in a bull market. So, nothing much will change until this recognition is reversed and the algorithms are programmed to ‘sell the peaks’;
• Margin debt has increased parabolically over the last 10 years, and in a rising market this is the leverage to power it up higher. But in a declining market, it becomes ‘white hot’ as traders are forced to sell to cover margin calls, and it becomes rocket fuel to power a massive market decline;

 

The benchmark US 10 year Treasury wave structure indicates a sideways consolidation phase since the start of Oct may now resolve into increased yields again as the long term bond bear market continues.

The US$ index declined yesterday, in sympathy with the US Fed comments to potentially end the rate hike cycle soon, as it declines into a multi-month weakening cycle. It is said that the next gold bull market is not likely to start until the end of the rate hike cycle which therefore adds impetus to the multi-month gold rally which is now likely to energise along with extreme bearish investor sentiment in precious metals plus extreme bullish Cots data.

 

US$

The US$ index has started a multi-month decline, after the clear 5 wave advance from the low in late Sep 2018, which is likely to test the lower regions of the support base around 200-Dema. There is a prominent bearish Engulfing candle at yesterday’s close which will propel the dollar lower, as it declined in sympathy with the US Fed comments to potentially end the rate hike cycle soon. The oscillators are turning down in support of this.

 

 

 

One of the powerful motivators for dollar weakness is the extreme investor optimism and the bearish Cots data which reflects in the ever widening dilation in the graphic. This is a powerful motivation for a drop in dollar value.

 

 

 

The 12 month daily chart illustrates prominent negative divergence which is another powerful indicator of the start of a multi-month decline phase which is likely to potentially drop dollar value well below 200-Dema (probably towards $93.80).

 

 

 

The 3 year weekly chart illustrates 3 recent bearish Star candles stalling the US$ advance below the resistance zone. Observe both oscillators turning down in support of a decline which will probably take the dollar down below 50-Wema towards the bottom of the support zone.

 

 

 

US Treasuries

US bonds continue to collapse into a long term bear market as yield on the benchmark US 10 year treasury (1 year daily chart) looks like completing a 2-month long sideways consolidation before turning up again, with both oscillators bottoming in sympathy.

 

 

The 5 year weekly chart illustrates the continued bear market (red diagonal arrow) with a collection of penetrations through H&S patterns (3 small black circles) up to the 2 month sideways consolidation (blue circle). Yield is likely to now continue increasing to complete a wave structure before the next correction.

 

 

 

Gold

Gold turned up with yesterday’s US Fed comment (and weaker dollar) as the multi-month rally moves sideways to up with limited energy. The extreme investor pessimism and bullish Cots data is however likely to provide more energy soon, especially as the US$ decline unfolds.

 

 

The gold COTs data continues to indicate the bullish convergence which will support higher gold prices and, by definition, also a weaker dollar.

 

 

 

The 12 month chart illustrates the need for gold to penetrate the diagonal resistance line as it then needs to test the key breakout level at $1246.

 

 

 

South African Rand

The US$ / ZAR currency pair broke down through the key Rand strength level, through the bottom of the reducing wedge pattern, as it established a new Rand strength level at $13.72. Expected dollar weakness will lead to Rand strength first although South African political and economic weakness will tend to reverse this. This retards share performance of SA Rand hedge shares, and the ZAR key levels are now $13.72 (strength) and $14.84 (weakness).

 

 

 

HUI / Gold Ratio

The ratio reacted positively to yesterday’s US Fed comments with US miners rising more than gold. It closed on a bullish Engulfing candle which will lead to more strength. The key breakout levels are at 0.1245 and thereafter 0.1291. Both oscillators are supportive and turning up.

 

 

 

GDX US miners ETF

The GDX chart is similar to the HUI/Gold ratio with similar commentary. US gold miners are starting to build momentum and also closed on an Engulfing candle which will lead to more strength. The key breakout levels are at 19.95 and thereafter at 20.55. Both oscillators are supportive and turning up.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart is equally similar with similar commentary, except in the opposite direction being a US miners bear index. The downside bias is accelerating and also closed on an Engulfing candle which will drop values further. The key breakout levels are at 29.50 and thereafter at 27.70. Both oscillators are supportive and turning down.

 

 

 

Silver

Silver also reacted positively to the US Fed’s comments yesterday, but maintains a negative-looking chart as it still continues to underperform gold. But extreme investor pessimism and positive Cots data continues which will trigger optimism in the silver chart soon. It desperately needs to also penetrate the diagonal resistance line which in the process will break through the first key breakout at $14.53, and hopefully lead on to the important key breakout at $14.95.

Both oscillators have turned up in support.

 

 

 

The silver COTs data remains very positive with a continued bullish convergence pattern indicating silver strength and likely start of a rally.

 

 

 

Gold : Silver Ratio

The ratio increased this week to 85.42 (negative) as silver continues to underperform gold. It continues to remain well above 80 and continues to be negative for the whole precious metals complex.

Both oscillators are turning down in support of a lower ratio (positive) and as the dollar continues to weaken so too will the whole complex improve.

 

 

 

 

General Equities

The Dow Jones increased some 600 points yesterday and is likely to fluctuate within a range between 25 400 – 25 800 before dropping into the next wave down to new lows below 24 400, as it continues in it’s secular bear market. The oscillators are rising in support of continued fluctuation and turbulence before the main trend continues.

 

 

The Dow 12 months chart illustrates the major negative divergence between price and MACD which is the main driver to eventually propel the Dow down strongly.

The key breakdown level is at 24 400 which is the tipping point for much lower prices. However, the oscillators are rising and therefore some fluctuations and turbulence will occur first.

 

 

 

A major wave 3 in the new bear market is underway, and as this develops it will activate a H&S pattern which will propel the index down another 3000 points, being the height of the head projected down below the neckline. This will easily penetrate the support base (solid red) and drop the index down towards 200-Wema.

 

 

 

Executive summary

Global equities are now moving into a bear market as they react to all the negative impacts that have been building for some while now. Using the Dow Jones Industrial Average as a proxy for activity in US equities one can gauge the stage in the collapse which is also finally moving in sympathy with the US bond market which already started a long term bear trend in mid-2016 as the interest rate cycle began to turn up. Using the US 10 year Treasury as a proxy for the US bond market one can see the beginning of a long term bear trend from mid-2016 at the end of a 35 year bond bull market that is likely to collapse all asset values in it’s path as the yield continues up.

In accordance with Elliott Wave Theory the Dow is now moving down after completing an ABC correction up and is in the process of declining impulsively in the powerful 3rd wave down that will envelop the previous low and drop significantly in a longer and stronger wave that is likely to test many supports lower down. There is still no ‘panic’ in the markets but the next period is likely to start changing some thoughts and market commentaries.

The US$ index has completed a 5 wave move up and is set to decline into a multi-month weakening cycle which will provide the necessary boost to the gold multi-month rally which has yet to witness any real energy. The extreme bearish investor sentiment in precious metals plus extreme bullish Cots data will add extra power to the expected gold rally. This gold rally is countertrend and will be followed by yet lower prices before the start of the gold bull market which is probably not too far off, and is likely to coincide with the termination of US Fed rate hikes.

 

US$

The US$ index has started a multi-month decline, after the clear 5 wave advance from the low in late Sep 2018, which is likely to test the lower regions of the support base around 200-Dema. The oscillators are mixed and the decline may therefore be jerky.

 

 

 

One of the powerful motivators for near term dollar weakness is the extreme investor optimism and the Cots data illustrating the Commercials increased short positions and Large Speculators increased long positions which reflects in the ever widening dilation in the graphic. This portends a drop in dollar value.

 

 

 

The 3 year weekly chart illustrates the start of the dollar decline after the bearish Star candle, similar to 3 months ago, which is likely to reduce dollar value towards the bottom of the support zone below 50-Wema.

 

 

 

US Treasuries

The US 10 year treasury yield continues to move sideways to down in a temporary interruption to the main up trend. US bonds continue to collapse into a long term bear market and this interruption could terminate at any time. The oscillators have been dropping aggressively which could support a turnaround with yield readying to turn up again.

 

 

 

Gold

Gold turned up aggressively off the diagonal support (red) in line with the recent weaker dollar which has provided some impetus to the gold rally gaining momentum and closing above 50-Dema. The extreme investor pessimism, as reflected in the bullish Cots data, indicates that the gold rally is likely to now start building increased energy and momentum.

 

 

The gold COTs data continues to indicate the bullish convergence which will support higher gold prices and, by definition, also a weaker dollar.

 

 

 

The 12 month chart illustrates the recent increase in momentum but price has closed on the diagonal resistance line (blue). Obviously, this resistance line needs to be penetrated if any impact is to made on the short term resistance zone, and the key breakout level at $1246 is some way off yet. The oscillators are supporting more upward movement.

 

 

 

South African Rand

The US$ / ZAR currency pair is forming a distinct reducing wedge pattern which suggests an upside breakout (Rand weakness). Obviously, expected dollar weakness will lead to ZAR strength first and a breakout down instead. Politically and economically conditions in South Africa invite a weaker currency, and the impending constitutional change to enable land expropriation without compensation is likely to aggravate ZAR devaluation. Rand key levels are $13.87 for strength and $14.84 for weakness.

The oscillators are mixed.

 

 

 

HUI / Gold Ratio

The ratio is building positive momentum with the first close above 50-Dema in 21 trading days. Both oscillators are supportive and rising.

 

 

 

GDX US miners ETF

The GDX chart is similar to the HUI/Gold ratio with similar commentary. US gold miners are building momentum with a breakout through the first key level at 19.84. Both oscillators are supportive and rising.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart is accelerating it’s downside bias and has a breakout through the first key level at 30.45. Both oscillators are supportive and dropping.

 

 

 

Silver

Silver has bounced strongly off it’s new low and the rally looks like it could be igniting as it moves to test the diagonal resistance (blue line). The key initial level is still some way off yet at $14.95, but the oscillators are supportive of further price gains. Extreme investor pessimism persists with continued positive Cots data, which suggests that we may soon get higher prices.

 

 

 

The silver COTs data remains very positive with continued bullish convergence pattern indicating silver strength and likely start of a rally.

 

 

 

Gold : Silver Ratio

The ratio improved slightly to close at 84.68, still remaining well above 80. Silver continues to underperform gold which is negative for the whole complex, but there appear to be indications that this may now start reversing.

 

 

 

General Equities

The Dow Jones has declined to a key breakdown level at about 24 400. All indications are that wave 3 in an impulse 5 wave down is in progress and penetration of this level will trigger the full force of this wave structure. The oscillators are dropping in support of this.

 

 

 

The VIX volatility index is beginning to cluster at higher levels as the US equity bear market begins to bite. This is usually an indication of either much higher or much lower prices to come.

 

 

 

The Dow 12 months chart illustrates the major negative divergence that has developed between price and the MACD, with price up and MACD down between Jan 2018 and Oct 2018. This will propel the Dow down strongly.

The key breakdown level is at 24 400 and the powerful wave 3 down will be triggered as this level is breached decisively. The oscillators are dropping in support of this.

 

 

 

A wave 3 in the new bear market is underway, and as this develops it will activate a H&S pattern which will propel the index down another 3000 points, being the height of the head projected down below the neckline. This will easily penetrate the support base (solid red) and drop the index down towards 200-Wema.

 

 

 

 

Executive summary

The US midterm election result is fully digested and markets have continued to take up from much where they were before the looming election started to impact.

US equities have started to roll over as the bear market begins to unfold, the US$ has stalled in it’s advance, and the bond market continues it’s relentless collapse. Precious metals and much of the resource market is beset by extreme investor pessimism as are US equities and the dollar beset by extreme investor optimism with still no sign of any recognition of the perils that lie ahead.

In accordance with Elliott Wave Theory the ABC correction up in the US equity market is complete and the stronger and longer 3rd wave is now in progress in the 5 wave impulse wave down. The US$ has completed a 5 wave move up that completes a 61.8% Fibonacci retracement of the decline from Jan 2017 to Feb 2018, which is likely now to reduce dollar value and provide the necessary boost to the gold multi-month rally which has yet to witness any real energy. The extreme bearish investor sentiment in precious metals plus extreme bullish Cots data will add extra power to the expected rally.

 

US$

The US$ index experienced a clear 5 wave advance from the low in late Sep 2018 which now promises a decline into the strong developed support base which is likely to reach the region of 200-Dema, or even probably lower to 93.80.

 

 

 

The US$ COTs data chart illustrates the continued wider dilation which is consistent with a weaker dollar, which should therefore decline in value. Dollar strength has been defying this but should now begin to move lower.

 

 

 

The 3 year weekly chart illustrates how the dollar has stalled with a bearish Star candle, similar to 3 months ago, having completed a 61.8% Fibonacci retracement of the drop from Jan 2017 to Feb 2018. The threatening H&S patterns have been voided for the time being and the decline should now extend through 50-Wema.

 

 

 

Japanese Yen

The US$/Yen currency pair has topped out at a lower high, indicating Yen strength, and together with oscillator support is now likely to decline further to 200-Dema. Although the link between Yen strength and gold strength is likely to wither through time, for now it still indicates a stronger gold price.

 

 

 

US Treasuries

The US 10 year treasury yield continues to move sideways to down in a temporary interruption to the main up trend. US bonds continue to collapse into a long term bear market and this interruption could terminate at any time. The oscillators are supporting a continued interruption.

 

 

 

Comparison between consumer sentiment and gold

The University of Michigan Consumer Sentiment Index peaks during the good times and troughs during the hard times. It also holds the key to the next major Gold bull market because, as you can see, there is a negative correlation. Therefore the next trough in the index will propel gold to the next peak.

If, as is now expected, the US equity market is in a bear trend ushering in the hard times, then it will also usher in the next gold bull market.

 

 

 

Gold

Gold turned up at the diagonal support with a Doji candle which supports a low. This is also supported by the oscillators turning up. Also, extreme investor pessimism, as reflected in the bullish Cots data, indicates that the gold rally is likely to now start building increased energy and momentum.

 

 

The gold COTs data continues to indicate the bullish convergence which will support higher gold prices and, by definition, also a weaker dollar.

 

 

 

The 12 month chart illustrates the clear 6 week up cycles supported by the red diagonal which in the next cycle is likely to break new ground. The oscillators are supporting the next up cycle.

 

 

 

South African Rand

The US$ / ZAR currency pair breakout through the neckline of the H&S neckline has been voided, and in so doing is forming a large reducing wedge. The expected dollar weakness will lead to ZAR strength first, although the reducing wedge may lead to upside breakout to weakness eventually. Rand key levels are $13.87 for strength and $14.84 for weakness.

The oscillators are turning sideways to up, and are somewhat mixed and not totally supportive either way.

 

 

 

HUI / Gold Ratio

Both the up and down H&S patterns have been voided as the ratio closed on a bullish Engulfing candle in a chart structure that is beginning to look increasingly bullish. The next key breakout level is 0.1237. Both oscillators are beginning to turn up slowly.

 

 

 

GDX US miners ETF

The GDX chart is similar to the HUI/Gold ratio with similar commentary. US gold miners are moving to breakout from a consolidated bottom and closed on a bullish Engulfing candle. The next key breakout levels are 19.84 and 20.55, and both oscillators are beginning to turn up slowly.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart is holding it’s positive bias and also closed on an Engulfing candle, supporting GDX improvement. Key breakout levels are at 30.45 and 27.70, and the oscillators look like they may be turning down in support of improvement.

 

 

Silver

Silver dropped to a new low against no new low for gold, as the 3 month non-confirmation mode continues. Silver continues to underperform gold which continues to affect the whole precious metals complex negatively. However, extreme investor pessimism persists with continued positive Cots data, which suggests this situation may end soon.

Silver’s key breakout level is $14.95 which is now some way off, and which remains the key level to be breached.

 

 

 

The silver COTs data remains very positive with continued bullish convergence pattern indicating silver strength and likely start of a rally.

 

 

 

Gold : Silver Ratio

The data deteriorated this week to close at 85.94 remaining well above 80. Silver continues to underperform gold which is negative for the whole complex.

 

 

General Equities

Before looking at the Dow Jones charts it is well to remind ourselves of the relationship between equity prices and interest rates. In fact all asset prices and interest rates. In general, when interest rates go up asset values come down, and vice versa. “People can have either a rising stock market or rising interest rates. They cannot have both, although we could have falling stock markets and falling interest rates” Keith Weiner.

Interest rates in the US peaked in 1981/82 at about 15% which ushered in the best investment opportunity, probably ever. They bottomed in mid-2016 and ushered in the worst investment opportunity, probably ever.

During these times, US bonds entered a bull market in 1981 that lasted 35 years until mid-2016. Since then they have been in a long term bear market which as it gathers momentum will wipe out all asset values in it’s path. One of those asset values is the stock market which in the US has ignored these signals and bungled on merrily. Consider the charts below which include the Dow Jones above and the benchmark US 10 year Treasury yield below. Notice the negative correlation and especially how the 10 year bond collapses after mid-2016 in higher yields and how the Dow Jones continues higher in an ever worsening investment environment.

The collapse of the US stock market is a given, together with the collapse of world stock markets and everything that goes with that.

 

 

 

The Dow Jones short term 3 month chart illustrates completion of the upward ABC correction, establishing the 1 and 2 (red). This leads to the downward wave 3 which is longer and stronger and should yield much lower prices in due course. The oscillators are dropping in support of this.

 

 

 

The longer and stronger 3rd wave down is in progress and this will penetrate 1 and lead to the next phase of testing all the break points (red circles) and the support base itself (solid red). The oscillators are dropping in support of this.

 

 

 

The 3rd wave new bear market is underway, and a H&S pattern is developing which when activated will propel the index down 3000 points, being the height of the head projected down below the neckline. This will easily penetrate the support base (solid red) and drop the index down towards 200-Wema.

 

 

 

 

 

 

Executive summary

The US midterm election result is in with the Republicans retaining control of the Senate and losing control of the House of Representatives. This is in line with expectations and the ‘big money’ seems to like it with a strong hike in equities. Obviously Donald Trump’s governing technique will need to change with some considerably increased Democratic pressure coming from the House, and the election result will probably need a while longer to digest the full impact.

US equities have corrected up strongly since the recent low on 29 October with a particularly strong push yesterday. The Dow Jones has moved up far more prominently than the other major US indices, retracing 73% of the downturn since the peak early in October. This celebration type surge is reminiscent of market reaction to Trump’s initial election in 2016 and is probably the reaction to the cheer of seeing the retention of the Senate as a victory. We need more time to digest the result.

In accordance with Elliott Wave Theory the current correction up is an ABC pattern after the initial impulse wave down from the peak, and the next day or two will determine the extent of the correction. The almost inverse reaction will be seen in the gold market.

The US$ index has started to weaken with support from extreme bullish sentiment and US$ Cots data, although the Gold rally continues to be lethargic partly due to silver underperformance. Precious metal investor sentiment remains extremely bearish while Cots data remains bullish, both of which presuppose higher prices going forward.

 

US$

The US$ index has weakened and invalidated the H&S breakout in the process. It has 3 consecutive closes below 10-Dema which could confirm a top, although ending on a Doji candle which indicates indecision and a potential reversal up again. The oscillators are dropping in support of further weakness and the Cots data agrees with this.

This keeps alive the question as to whether the Elliot Wave ABC correction is complete, or not, and whether the B wave is more complex and still in process to generate a lower C, towards 93.80 which is in the region of 200-dema.

 

 

 

The US$ COTs data chart illustrates the continued wider dilation which is consistent with a weaker dollar, which should therefore decline in value. Dollar strength has been defying this but in dropping now agrees with this.

 

 

 

The 12 month chart illustrates the potential to drop down to 200-dema from the bearish double top, with oscillators dropping in support.

 

 

 

US Treasuries

The countertrend relief rally in the US 10 year treasury could have ended with yield likely to continue higher, as US bonds continue to collapse into the long term bear market. The Slow Stochastic may be topping out but the MACD is still rising strongly in support.

 

 

The 10 year US Treasury long term 40 year chart illustrates yield edging up through the upper trendline en route to higher yields in due course. Penetration of the H&S, already achieved, indicates initial advance should reach 5%, being an increase equal to the depth of the head. Being a long term cycle, yield is likely to exceed this by a factor of 2 or 3, coming as it does from yield exceeding 15% in 1983.

 

 

 

Gold

The Gold rally continues to consolidate as it closes on 10-Dema with a Doji candle, and any serious advance needs increased investor sentiment and a lower dollar. Without this, prices are likely to roll over soon. However, the Cots data remains bullish with very low investor sentiment, both of which assume higher gold prices, but the oscillators are drifting and not supportive.

 

 

The gold COTs data continues to indicate the bullish convergence which will support higher gold prices and, by definition, also a weaker dollar.

 

 

 

The 12 month chart illustrates the price consolidation below resistance with the need to break through the diagonal (blue) and test the next breakout level at $1246. Failing this, prices will roll over and test the support region (red).

 

 

 

South African Rand

The US$ /ZAR currency pair has broken down through the neckline of the H&S and a key resistance / support trendline. This will herald a stronger SA Rand and a weaker US$. Technically, the SA Rand will strengthen towards R12.50 which is equivalent to the height of the head.

The Slow Stochastic is reaching the bottom of it’s range although the MACD has further to drop, which means the oscillators are somewhat mixed and not totally supportive.

 

 

 

The ZAR cots data indicates continued reverse dilation which is consistent with a continued stronger dollar and weaker ZAR which is inconsistent with the above assment.

 

 

 

HUI / Gold Ratio

The HUI / Gold ratio has stalled to close below 10-Dema, in a pattern with neutral bias. The H&S breakout has been invalidated and a new bearish H&S is threatening to develop. Both oscillators are drifting in support of the sideways drift of the ratio which continues to be midway between support and resistance.

 

 

 

GDX US miners ETF

The GDX chart is more positive with the H&S breakout valid again, and there is no threatening bearish H&S pattern in the opposite and negative direction. However, the upside needs to test the key breakout level at 20.55 otherwise it will be subject to testing support. The oscillators are drifting with no particular bias.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart is positive with the H&S breakout valid again, and there is no threatening bearish H&S pattern in the opposite and negative direction. There is a distinctly positive bias to the chart pattern indicating downside sooner than upside which is positive for US miners. However, the oscillators are drifting with no particular bias.

 

 

Silver

Silver is locked between support and resistance in coiled mode that is likely to breakout energetically in either direction. Silver continues to underperform gold which continues to affect the whole precious metals complex negatively, but price mode recently suggests this might now be starting to change.

Resistance neckline is at $14.95 which remains the key level to be breached. Penetration of this level will assume ignition force, and at the same time the diagonal support will be breached.

 

 

 

The silver COTs data remains very positive with continued bullish convergence pattern indicating silver strength and likely stronger rally.

 

 

 

Gold : Silver Ratio

The data improved slightly this week but remains well above 80 to close at 84.34. Silver continues to underperform gold which is negative for the whole complex.

 

 

  

General Equities

The Dow Jones is correcting up strongly at the moment in an ABC pattern which, once complete, will established the 1 – 2 that will lead down into the powerful 3 wave down which is always the longest and strongest.

 

 

 

The negative trend of narrow low energy on the New York Stock Exchange reversed this week during the strong corrective ABC wave up, which is consistent with rallies in a bear market. The market closed yesterday (in recovery mode) with new highs exceeding new lows by a margin of +29.

 

 

 

US equities corrected up strongly since the recent low on 29 October with a particularly strong push yesterday. The Dow Jones has moved up far more prominently than the other major US indices, retracing 73% of the downturn since the peak early in October. Once complete, this corrective wave up will lead to a strong wave 3 down to test to the next prominent support level (red) in testing all the break points in the red circles.

 

 

 

Executive summary

The US markets seem to be developing into a near repeat of the run up to the US presidential election in Nov 2016 when nervous capital stalked the market in Sep/Oct before the election. Gold bounced in Oct, Trump won, fear collapsed, and capital pounded into stocks and out of gold. Will Trump maintain his position in the mid-term election or will the Democrats take something back? If not, general equities will probably rally strongly and gold will sink into the Dec rate hike, or perhaps a compromise somewhere in between.

In accordance with Elliott Wave Theory ‘news’ does not move markets, and the wave structures are indicating the start of a serious bear market which is now upon us. The initial 5 wave down is complete and the market is now correcting up in an ABC pattern which is likely to top on election day (6 Nov 2018).

The US$ index continues to strengthen and has a breakout through a H&S pattern which could propel the dollar to $98 which would trigger a larger H&S to take the dollar to $104. Extreme bullish sentiment and US$ Cots data indicate this will not happen quickly and that the gold rally is likely to complete first before an ultimate stronger dollar.

The Gold rally is suffering a setback this week with all the precious metal and ancillary charts looking weaker. But, adverse sentiment and the Cots data indicate this is temporary before the rally gets underway again. The strongest of these remains the silver underperformance of gold which continues to retard performance of the whole precious metals complex.

 

US$

The US$ index is rampant, breaking up strongly through a H&S pattern that will likely propel value toward $98. This is consistent with collapsing equities although the oscillators are topping out, especially the Slow Stochastic. The Cots data suggests some weakness ahead which keeps alive the question as to whether the Elliot Wave ABC correction is complete, or not, and whether the B wave is more complex and still in process to generate a much lower C.

 

 

 

The US$ COTs data chart illustrates the continued wider dilation which is consistent with a weaker dollar, which should therefore decline in value. Dollar strength is defying this at the moment.

 

 

 

The 3 year weekly chart illustrates the larger H&S which is developing, and if price advances to $98 then this will activate and propel the dollar to $104. The higher price level of $104 is consistent with the still much lower gold price which is likely to decline towards $1000 or $900 once the gold rally has terminated.

The jury is therefore still out as to dollar value in the short term.

 

 

 

US Treasuries

The countertrend relief rally in the US 10 year treasury continues to edge along although evidence now suggests increasingly that it may end soon, such as the Cots data and oscillators beginning to turn up. The main bond market collapse may therefore resume soon as it then begins to increase yield.

 

 

The US 10 year Treasury Cots data chart illustrates the wide dilation beginning to reduce which indicates the potential end to the countertrend relief rally. This means yield will start increasing again as the US bond market resumes it’s collapse.

 

 

 

Gold

The Gold rally has dissipated with price dropping this week down towards support with the overbought oscillators dropping which indicates the potential for further declines. However, sentiment remains bearish and the Cots data bullish which both indicate higher gold prices.

 

 

The gold COTs data continues to indicate the bullish convergence which will support higher gold prices and, by definition, also a weaker dollar.

 

 

 

The longer term weekly 3 year chart illustrates the price decline this week supported by rising oscillators supporting higher gold prices. A key breakout level is at $1246.

 

 

 

South African Rand

The developing H&S pattern in the US$ /ZAR price has dissipated for the time being, removing the threat of a stronger SA Rand for now. The breakout levels are Zar15.10 for a weaker Rand and Zar14.00 for a stronger Rand. The oscillator positioning suggests penetration at Zar14 is unlikely, and the Cots data supports that view.

 

 

 

The ZAR cots data indicates continued reverse dilation which is consistent with a continued stronger dollar and weaker ZAR.

 

 

 

HUI / Gold Ratio

The HUI / Gold ratio has lost more momentum in voiding the earlier H&S breakout. The ratio turned down from resistance and is now threatening a H&S in the opposite and negative direction. The chart structure is still intact between support and resistance and the HUI needs to build momentum all over again. The oscillators are mixed although the Slow Stochastic is turning up.

 

 

 

GDX US miners ETF

The GDX chart is of course similar to the Hui:Gold ratio chart and it also exhibits similar commentary, although less bearish. In fact it can be said to have a positive bias, and no threatening H&S pattern in the opposite and negative direction.

 

 

 

DUST US Gold Miners Bear Index

The Dust chart displays virtually the exact opposite and is positive for US miners if it declines. It too has lost momentum with oscillators turning up with a delay in positive moves for gold and miners.

 

 

 

Silver

Silver lost the momentum gained during the previous week and continues to underperform gold which remains the strongest impact resisting any meaningful advance in the precious metals complex.

The neckline is at $14.97 which remains the key level to be breached. Penetration of this level will assume ignition force, and at the same time the diagonal support needs to be held.

 

 

 

The silver COTs data remains very positive with continued bullish convergence pattern indicating silver strength and likely stronger rally.

 

 

 

Fractal Silver vs US$ comparison

Conventional wisdom indicates a stronger dollar and weaker silver price going forward, give or take an Elliott Wave silver rally in the short term first. However, a fractal analysis of the 2 indicate a very different picture. Observe the charts below.

 

 

 

The $silver price created a pattern during the years 1998 – 2003 that is described by the numerals 12345, before the major breakout that took price from $5 to $50 in 2011. On a fractal comparison basis virtually the identical pattern has been created in the period from 2011 to now, also described by the numerals 12345, which suggests an equally powerful breakout is soon to follow.

Now look at the US$ chart over the same time frame. Notice the following:

• The silver price increased from 3 to 5 from 2002 while the dollar declined substantially during the same period between dotted green verticals. The dollar created a major topping pattern at that time that took dollar value from 120 down to 70 (red arrow).
• Now jump to 2016 and notice the identical silver increase from 3 to 5 while the dollar drops between the green dotted verticals. The dollar also created a major topping pattern.

Is this the prelude to another major silver breakout to take price up by a factor of 10 and the dollar down by 40%????

  

Gold : Silver Ratio

The data deteriorated again this week with the ratio closing higher at 85.07, creating a double top. Silver continues to underperform gold which is negative for the whole complex.

 

 

 

General Equities

The Dow Jones bear market collapse is underway having completed the 1st impulse 5 wave down, and is now correcting up in an ABC pattern that could top by the US election day on 6 November. Once this corrective wave up is complete it will have established the 1 – 2 that will lead down into the powerful 3 wave down which is always the longest and strongest.

 

 

 

The negative trend of narrow low energy persists on the New York Stock Exchange with new lows continuing to exceed new highs. The lethargic bear market closed yesterday (in recovery mode) with new lows exceeding new highs at -117. The chart is still signalling a massive collapse ahead (red diagonal).

 

 

 

The collapsing Dow is developing a strong H&S pattern which, when penetrated, will the index down to the next prominent support level (red) in testing all the break points in the red circles.

 

 

The longer term 3 year weekly chart illustrates the developing H&S pattern which is likely to drop the index down to the first level of support (red). Below this level there is little support due to the rampant bull market earlier.

 

 

Executive summary

World equities are beginning to roll over in response to their overwhelmingly precarious positions as a new different dynamic starts to grip the markets with various ‘flight to safety’ mechanisms becoming increasingly apparent. Equity wave structures are defining the shape of things to come and the markets are starting to collapse with money moving into the US$, the bond market, and the beginning of a revival in metals and miners.

This is manifesting in the start of a countertrend relief rally in US bonds and a strengthening US$, while oversold (and neglected) metals and miners are beginning to move up slowly. This is all consistent with both the gigantic fundamental and technical issues plaguing markets in parabolic debt levels, interest rate cycle turning up, and over-valued assets in over-valued currencies.

The US$ index continues to strengthen and has a breakout through a H&S pattern which could propel the dollar to $98 which would trigger a larger H&S to take the dollar to $104. US$ Cots data and the stronger Yen suggest this will not happen quickly and that the gold rally is likely to complete first before an ultimate stronger dollar.

The Gold rally is continuing although there are a number of negative impacts suggesting that progress will be hampered before the rally gets underway again. The strongest of these is the silver underperformance of gold which continues to retard performance of the whole precious metals complex.

 

US$

The US$ index breaks up through a H&S pattern indicating continued strength toward $98. This is consistent with collapsing equities although the Slow Stochastic seems to be topping out. The Cots data suggests some weakness ahead which keeps alive the question as to whether the Elliot Wave ABC correction is complete, or not, and whether the B wave is more complex and still in process to generate a much lower C.

 

 

 

The US$ COTs data chart illustrates the wider dilation which is consistent with a weaker dollar, which should therefore decline in value.

 

 

 

The 3 year weekly chart illustrates the larger H&S which is developing, and if price advances to $98 then this will activate and propel the dollar to $104. The higher price level of $104 is consistent with the still much lower gold price which is likely to decline towards $1000 or $900 once the gold rally has terminated.

The jury is therefore still out as to dollar value in the short term.

 

 

 

Japanese Yen

One of the major currencies making up the US$ index is the Yen which has been strengthening through the month of Oct. In the process it has developed an inclined H&S which if penetrated will result in a short term weaker dollar and stronger gold price.

 

 

 

US Treasuries

The US bond market collapse continues although a countertrend relief rally has developed with impetus from collapsing equity prices. This is likely to test the diagonal support line (red) before the main bond market collapse resumes to eventually much higher yields.

The oscillators are dropping in support.

 

 

 

The US 10 year Treasury Cots data chart illustrates the wide dilation which will propel prices higher, which by definition means lower yields. This is consistent with the countertrend relief rally.

 

 

 

Gold

The Gold multi-month rally continues after the breakouts, although it closed yesterday on a threatening Harami candle. The oscillators are overbought and indicate the potential for a reversal although sentiment remains bullish with still positive Cots data.

 

 

The gold COTs data continues to indicate the bullish dilation which is likely to generate additional gold strength and by definition also a weaker dollar.

 

 

 

South African Rand

The South African Rand is developing a H&S pattern against the US$ and needs to strengthen to penetrate the neckline which will propel the ZAR to R12.50. The oscillator positioning suggests penetration is unlikely, and the Cots data supports that view.

 

 

The ZAR cots data indicates the Commercials long the dollar and short the Rand which is consistent with the bullish reverse dilation indicating a continued stronger dollar and weaker ZAR.

 

 

HUI / Gold Ratio

The HUI / Gold ratio has lost some momentum, turning down at resistance at the level of 0.1276. The chart structure is still intact and the H&S breakout is likely to propel the ratio up to a level of 01375, well into resistance. The oscillators are peaking and therefore this might take a while longer to achieve.

 

 

GDX US miners ETF

The GDX chart is of course similar to the Hui:Gold ratio chart and it also exhibits similar commentary, although slightly less bearish. Once momentum starts to build again it may well generate it’s own energy as the miners lift the gold price as the gold price lifts the miners.

 

 

DUST US Gold Miners Bear Index

The Dust chart displays virtually the exact opposite and is positive for US miners if it declines. It too has lost momentum with oscillators turning up with a delay in positive moves for gold and miners.

 

 

Silver

Silver regained some momentum this week but still continues to develop a H&S pattern which remains incomplete. Silver continues to underperform gold and this remains the strongest impact resisting any meaningful advance in the precious metals complex.

The neckline is at $14.97 which remains the key level to be breached. Penetration of this level will assume ignition force, and at the same time the diagonal support needs to be held.

 

 

 

The silver COTs data remains very positive with continued bullish reverse dilation, indicating silver strength and likely stronger rally.

 

 

Gold : Silver Ratio

The data deteriorated again very slightly this week due to silver’s non-confirmation of the gold rally. It closed at 83.89 although there appears to be potential for a consecutive lower high with a diagonal resistance line developing (blue). Much may develop in the next period.

 

 

General Equities

The Dow Jones bear market collapse is underway having now penetrated the key support levels at 25 760 and 24 950, with the oscillators dropping substantially. The general equity markets have turned solidly bearish.

 

 

 

The negative trend of narrow low energy persists on the New York Stock Exchange with new lows continuing to exceed new highs. The lethargic bear market rally has terminated and new lows are exceeding new highs massively to signal a continued market collapse, closing yesterday at -458.

 

 

The market collapse on the New York stock exchange is now in unison, with all the major indices displaying the same negative signals. The Dow closed below 200 day moving average for the first time in a long time. The first real zone of support is now only 4% below current levels.

 

 

The longer term 3 year weekly illustrates penetration of the H&S pattern which is likely to propel the index down to the next major region of support.