Dead Markets Walking

October 12, 2015

For the past four years the main trends in the major markets were fixed as if running on rails. Wall Street was bullish, with rapid recoveries after any brief sell-off; gold and silver was bearish, with every rally soon capped and reversed; the dollar was on a rampage higher and the yield on the US 10-year Treasury as bullish to quite stable, with any weakness soon countered by a new rally – but it also attracted new sellers whenever the yield dropped below the 2.0% level. Each of these trends supported and confirmed the often repeated message that all was well in the US economy, if the sluggish growth was overlooked and treated with patience. About two months ago, the theme in these reports changed from mostly accepting the trends as they are to warning that their time was running out. The tipping points for the markets appear to be already in place, except that the forces that favoured the long term trends are engaged in a rear guard action that still try to maintain the illusion of the status quo. For some of these markets the saying, “Dead man walking” applies. For gold and silver the opposite, a revival and a fresh lease on life, is winking now.

The 1-day charts of the DJIA of recent now shows late afternoon miraculous rallies as a matter of routine. These rallies have become a frequent feature over the past four years, but now they even trump such bearish news the NFP coming in at 60 000 new jobs below what economists expected. It seems to have become essential to lever the DJIA back above 17 000 and now to make a run for the very important 18 000 level. The very blatant way in which the DJIA still rallies right on time whatever the news, good or bad, shows how desperate it has become to present a positive picture to the man on the street and for the media to manufacture their headlines.

The past week was good for Wall Street; the week started with the DJIA ready to test support at 16 000 points and ended with the index well above 17 000 points. The same does not apply to the dollar or the yield on the 10-year Treasury note, while both gold and silver moved higher off the support they have been testing the previous week and more. With four of five major markets that were clearly subject to external influences now going against their intended trends, thus Wall Street has become of critical importance to maintain the facade of a functioning economy. The pressure will be on to keep the DJIA above 17 000 and to reverse the other trends, if that can be achieved given the worsening situation. 

Euro-Dollar Chart

The rising trend of the euro, after having found support at the bottom of channel AD is still well-contained in what so far is the new bull channel, KL (K $1.1774: L $1.1068) Key resistance is at line C ($1.1643), while line Y ($1.1253) is not stable as either support or resistance – no longer as clearcut as it had behaved in the past.

The outlook remains bullish while channel KL holds, with a definite break above line C needed for greater confidence in the new bull.

Euro-dollar, last = $1.1358 (www.investing.com)

Dow Jones Industrial Average (DJIA)

Dow Jones Industrial Index, last = 17084 (money.cnn.com)

The steep break below support of line L soon recovered off the low to settle mostly sideways in a tight range with line B (16559) on occasion acting as resistance. The two brief spikes to above line B can be viewed as attempts to move the DJIA above the 16000 level that was so determinedly defended; until the stock market reacted higher in response to persistent late afternoon rallies, irrespective of the news.

It would not surprise to see these rallies continue, perhaps with 18000 as a target. That achievement could change sentiment in other markets and be of benefit for the dollar and perhaps also the bond market. Yet, as the 1000 point fall in response to the collapse in the Chinese stock market has shown, Wall Street is vulnerable.

Gold PM Fix - Dollars

The price of gold is still in dangerous territory, stuck below resistance at line B ($1161) and barely holding above the major pennant RZ ($1107). It is however promising that last week saw an improvement in the price of gold. Bull channel KL ($1131) is holding now – so far – after briefly giving way during the onslaught that was associated with the NFP announcement. News from India and China also tell of  strong demand and sustained high imports from the west. While difficult to predict when, a breakdown in supply should have a sudden and major effect on the price.

Gold price – London PM fix, last = $1151.55 (www.kitco.com)

Gold PM Fix - Euro

The euro is still improving in fits and starts and still prevents the euro price of gold to obtain full benefit from the better performance of the dollar price of gold. On the other hand, the euro price has held clear above the bottom of triangle AS (€988.1). The recent rebound off line S completed leg 4 of the large triangle and the normal anticipation of what will happen hinges on leg 5 breaking above the triangle at line A (€1076) in due course. Leg 5 does not have to complete a rise in a straight and bullish move up to line A, but could see-saw to and fro, much as leg 3 did on the way down. 

Euro gold price – PM fix in Euro, last = €1014.3 (www.kitco.com)

Silver Daily Fix Chart

The price of silver is still the worst performing chart in this report, but this could be changing. The first of the recent breaks above its long term pennant to give a buy signal got smacked down immediately. Now there is a second and more decisive move higher – but still stuck below resistance at line D ($16.06). Mondays often are “hit gold and silver” days in early Asian trade. More recently, this has tapered off to a degree. Could it be that with Asian appetite for the precious metals, the selling is no longer with low risk and with the same significant effect as before?

It is still my believe that for some reason, perhaps not yet identified, silver presents a much greater problem to the central banks and other large players than gold, the bond market and the currencies. It could be only Wall Street, with its role as a false barometer for the man on the street that compares with silver for its importance as a means to avoid a major melt down.

Silver daily fix, last = $15.99 (www.kitco.com)

U.S. 10-Year Treasury Note

U.S. 10-year Treasury note, last = 2.090%   (www.investing.com)

The yield on the US 10-year Treasury bond is sitting tight in its steep bear market channel KL (2.067%). The final break higher above bull channel YZ at 2.009% in April this year, briefly broke above market support at line S (2.369%) then rallied again as Wall Street became volatile and the usual reflex flight to safety in bonds happened. Now the yield is sitting right at market resistance of the bear channel at line L. This week should show whether the trend higher in the channel will continue or whether fresh support for the bond market will take the yield lower again. 

West Texas Intermediate Crude. Daily Close

The chart is up to date to Friday. The price spent quite some time sitting on support from line D$45.01)in a tight sideways trend holding just above the support at line D ($44.96). Last week the price edged higher to remain in bull channel FG ($46.41). It is a steep channel and the price will have to keep going higher at a good rate to hold to the channel. Resistance at line Y ($52.37) is the nearby resistance that has to be broken by the trend higher sustain the rising trend.

West Texas Intermediate – Daily close, last = $49.63

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