Market Analysis 4 Feb 2021

Executive summary

Market mania in the US reached crazy heights this week as the Reddit / Robinhood raiders induced retail investors to create hyper bubbles in especially ‘Gamestop’ and ‘Silver’ that is going to end badly. Obsessed investors market manipulated mainly these 2 assets in a short squeeze by:
. buying up call options;
. forcing market makers to buy the underlying assets;
. forcing short sellers to buy their assets back;
. forcing prices to sky-rocket;
The play is finished, and asset prices are dropping back markedly, in a market rapidly increasing in volatility which could be the forerunner of a collapse in the overall market. The short squeeze in silver has certainly been bogus, as evidenced by Cots data which shows speculators are net long and not short as incorrectly reported, reflecting the crazy distorted condition in US markets which can only end badly.

The Dow Jones corrects up slightly after the recent low with price still within the boundary of the threatening rising wedge, which it needs to breach either up or down to signal strongly. The market awaits a significant break to signal a solid trend change, which inevitably must come at some point, because what is happening is not sustainable.

The US dollar is now in a strengthening phase which is set to accelerate, supported by reciprocal evidence in the EuroDollar chart, but will become supercharged once US equities actually start real declines. Gold is poised to resume declines and US miners continue to look bearish.

Dow

The Dow Jones corrects up slightly after the recent low as it advances back above the 50-day MA (red). Price is still within the boundary of the rising wedge and well above the 200-Day MA (green), and could hold above these levels or even go to a new high. It needs to penetrate down below the rising wedge to signal what could then be significantly bearish. However, equity breadth yesterday remains flat (at 1.28 advances :1.0 declines) and volume has been contracting for 5 days. The market awaits a significant break to signal a solid trend change, which inevitably must come at some point, because what is happening is not sustainable.

US Dollar

The dollar is now in a strengthening phase powered by 2 consecutive buy divergences. This will accelerate into a strong advance once the reducing wedge is penetrated (which has already occurred in the long term data in the weekly 5 year chart). This is supported by reciprocal evidence in the Euro chart but will become supercharged once US equities actually start real declines.

Long term data in the weekly 5 year chart indicates there is in fact a breakout of the reducing wedge which will accelerate the dollar advance, as evidenced by the wedge breakout 3 years ago on a fractal basis. The breakout now will support the notion of much weaker gold ahead.

EuroDollar

The EuroDollar is now in a weakening phase powered by 2 consecutive sell divergences. There is a breakdown through the rising wedge and this will now accelerate into a strong decline which is supported by the increasingly negative economic data coming out of the EU (certainly when compared with the US which is bad enough).
Euro Cots data (not shown) also supports a weaker Euro with a virtually identical chart to the US dollar, except opposite.

US Treasuries

The US Treasury 10 year yield rises back up towards a 10 month peak, with this week’s slight correction up in US equities, as bond prices turn down. So, yield still continues to grind up slowly within the confines of the rising channel, and this is supported by the ‘gold cross’ (black arrow) with the 50-Day MA (red) crossing up through the 200-Day MA (green) which finally signals a move towards higher interest rates. But for certainty, we need increased yields during the ‘acid test’ when equities are actually declining. Also, the weekly 5 year chart (next) indicates that yield could be declining soon.

A nagging contrary view is provided by the weekly 5 year chart which illustrates a reverse sell divergence indicating lower yields to come next. This is based on long term weekly data and may not happen soon.

Gold

Gold is poised to decline further with support from Cots data (next chart). The gold price has 2 minor breakdowns as it ‘meanders’ further down the reducing channel, which could of course turn out to be a large bull flag!!! But precipitous equities and advancing dollar (plus gold cots data) all indicate further gold declines.

Gold Cots data indicates massive dilation (red circle) which is bearish with gold declines to continue. This can be seen (verified) by the opposite massive constriction which occurred in Sep 2018 at the start of a strong strengthening phase in gold.

South African Rand

The Rand strengthens again against a stronger dollar, against the dollar buy divergence. This is all inexplicable and should reverse soon. The dollar buy divergence and actual strength in the dollar should prevail in a weakening Rand next. The US$ZAR continues to drift lower within the confines of the reducing channel which should see greater Rand weakness once the top trendline is breached in what could end up as a large dollar bull flag.

Hui : Gold Ratio

The HUI / Gold ratio bearish dome pattern continues to hold out and promise lower miner and gold prices, miners lead gold lower. The slight uptick in the ratio has met resistance at the 50-day (red) and 200-day (green) Mas, and further declines will test the major support zone.

GDX US Gold ETF

GDX has a similar chart and is also poised for more breakdowns. If the gold Cots data plays out true then US miners should soon test support also.


This situation applies also to all US miners, and HUI, GDXJ, and XAU are all positioned in likewise charts subject to further breakdowns.


Dust US Miners Bear Index

The Dust chart base breakout is proving to be a long time coming, and continues into 7 months. It has still not broken up, although a breakout soon continues to appear probable.

Silver

Silver shows a sharp advance and decline this week in the wake of the bogus short squeeze. Like gold, silver is poised to decline further with support from Cots data (next chart), plus a stronger dollar. But much still depends on US equity direction which will accelerate (or retard) dollar strength.

Silver Cots data indicates massive dilation (red circle) which is bearish with silver declines to continue. This can be seen (verified) by the opposite massive constriction which occurred in Sep 2018 at the start of a strong strengthening phase in silver.

Gold : Silver Ratio

The gold / silver ratio declined due to the bogus and temporary silver short squeeze. This reflects the increased silver price but on the chart has the effect of simply extending the double bottom. The ratio continues to drift sideways and we need more price movement to make more intelligent judgements.

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