State Of the Markets

In the face of the government's unprecedented market intervention, the technicals have been more or less irrelevant since last year but let's see the state of the charts anyway. 

USERX 

Ever since the June top, the gold stocks are stuck in a downtrend channel and there is no sign of life in them. The price is at the bottom end of the channel and a short term rally could ensue any moment to relieve the oversold condition but the bearish constellation will be hard to overcome. The target for a potential short term rally is around $12.25ish but given the state of the dollar chart (breakout), it seems that the medium-term target for USERX is down in the 10.28-10.86 area. If this area cannot contain the fall then the next target is $9.67 which is the 50% Fibonacci retracement from the whole 2015-2020 rally. 

I have increased my long position in gold shares in the last 2 weeks but will unload on the way up and go back to the core position

I am adding the weekly chart of USERX to illustrate that currently, the price is at the weekly support hence my long position but the ultimate target for this move is in the 10.50ish area.

GLD

GLD is managing so far to hold the trendline support but the recent strength just managed to set up more bearish scenarios for the near future. If GLD cannot keep up above the rising 92-96 echo it will generate a nasty double or triple sell by the 15th Sep. This potential sell would coincide with a renewed break of the support, and that would add to the potency of the sell signal. On both the daily and the weekly chart the path of least resistance is down, the gold shares are weak, the silver is weak, the oil is weak, the dollar broke out, copper broke down...too many bad omens for gold here while price needs a sustained strength to be lifted out of the danger zone. Not good.

UUP

I've been posting since two weeks ago that there is an ongoing battle between the dollar and gold for the direction of the next rally. The dollar chart seems like it has signalled the outcome of the battle, it broke out, dollar wins for now. If this signal does not revers immediately I suggest that the next target for the UUP price is around 26.4. 

I am also wondering if this breakout is marking a beginning of a correction in the industrial sector, especially Russell 2000 as the bellwether of the US economy. The sector has been struggling since March and it seems like capital is now moving back to the tech sector, cryptos and treasuries. Gold is being ignored regardless of the high inflation and falling real yields. Maybe this is because market participants think that the tech sector and cryptos are better inflation protection or the trust in the FED is still so widespread that investors believe that it can keep inflation under control. 

The other possible explanation is that the dollar breakout is signalling that the underlying monetary conditions are tightening. If that is true, the inflation might be transitory and further monetary tightening could force investors to seek refuge in the dollar and bonds and abandon everything else. This could cause the cryptos and the tech sector to join gold and start a correction soon until monetary conditions ease again. 

Anyway, I have established a long dollar position the night the gold fell $100 and will increase it on any dip this coming week. Stop loss for now 24.70.

RUT - Russell 2000

As I said in the UUP comment the Russell price chart looks weak. The 92-96 echo sold while breaking the trendline and further weakness would imply a breakdown from the consolidation flag that has been developing since the March high. This chart signals a weakness in the US economy. That was quite visible in the economic data during the last two weeks. 

To be fair I have to say that the recent 92-96 sell has set a potential bull market signal if the price can rise to a new all-time high. The setup will be there till the end of August. Knowing how resilient this chart has been since the March 2021 crash it might make a similar manoeuvre again but the odds are to the downside. 

 

S and P 500

The bull market is alive and well. The only sign of weakness is that the rate of rising is declining because the price couldn't keep up above the green trendline. The 16-20 sell signal is 60 days old, which constitutes 3 cycles. The 35-39 buy signal is 198 days old, which is 5 cycles. Eventually, the price will have to drop to a new buy/sell again. We will see if the dollar strength can help with this.

 

 

Nasdaq

Similar to SandP, there are no structural weaknesses in this chart but the signals are getting old. The 16-20 has just been bought and the 35-39 is starting to break. Can we finally get a decent correction, at least on par with the one in February-March this year if not more? 

10 years yield

The ten years yield is in a firm downtrend which in the current situation and according to many monetary experts might be a symptom of tightening fiscal and monetary conditions. Is this what the strength in the dollar is signalling? It is obvious by now that the high inflation cannot stop the S and P rise so the breaks might be activated from the other side, a sudden quick strength in the dollar. It rhimes with the weakness in the gold sector, otherwise falling real rates should be good for gold.

GDX, GDXJ

Gold sector stocks are in a free fall. A short term relief might be in cards but it seems to me that medium-term this drop has further to go. See USERX and GLD for more details. 

GDX

GDXJ

Bitcoin

Bitcoin started a countertrend rally in July and it executed a 92-96 xxed buy yesterday. I think it is still in a bearish constellation until it can form a higher low or break convincingly above 51K. 51K is strong resistance, 61.8% Fibo retrace of the crash. There is a congestion of the echoes in the 40K area and I think that if the price can dip down there and define new support the bitcoin might be ready for a new bull market. If not, the target is still far down at around 20K. 

I have a core position in BTC that I will not touch before the situation is clear what is going on. 3% of my net worth is in cryptos (BTC, ETH, ADA) and all of it is casino's money because I already took my investment out. 

Copper sector stocks

A week ago I published the copper stocks chart in my 'chart of the day' post to illustrate a possible breakout. I even opened a long position with a very tight stop. That setup has quickly morphed into a nasty double sell that now more than anything else corroborates the weakness in Russell 2000. Dr Copper is predicting more trouble for the industrial sector. The chart looks like a triple top in a form of a head and shoulder pattern. The target for a drop would be in the $24 area (-30%).

Uranium sector

The same as the copper sector, a breakdown is now obvious on the triple top head and shoulders chart. Target around 14 (-25%)

Australian gold stocks

Compared to the US gold sector the Australian gold stocks are showing relative strength. A disconnection between the Australian gold stocks and the US gold stocks usually means the reversal is coming but such a condition normally lasts for a few months before the turnaround really happens. The disconnection is fairly recent so I think there is more downside to go before the change of trend. 

Many significant signals have been generated across different sectors during the last two weeks. My interpretation is that they might be showing a picture of the weakening US economy due to tightening monetary and fiscal conditions. This might unfold as a market correction in the next month or two. How deep the correction will be that is to be discovered. 

I am short term long Australian gold stocks, medium-term long dollar and keep a core position in the silver/gold and crypto sector. Let's see what the next two weeks bring. My money is on a small correction in gold/dollar followed by a trend continuation after Labour Day in the USA. 

Good luck to all.