Surprise, Surprise . . .!!

The fire brigade rolled up last week! They made sure the fire did not take hold, but had to rush off before it was all extinguished; there were so many fires to get to in a hurry they did half a job on some. This is not about hope or wishful thinking, but confidence that in time the markets, as they have always done, will prove to be stronger than the fire brigades sent out by those who have forgotten their oaths to look after the interests of the People. First. As set out in the Constitution. Including their clones acting in the same way in most western countries.

Rant over. Damage was done to the Precious Metal markets, but this is nothing strange going into month end and all that entails for the futures markets. And the NFP number the first Friday of the new month. Wall Street was fully in flames and it turned into a battle royal to put these out before the market fell apart. With 18000 now just a distant dream, damage control is still working hard to see if their rear guard action can achieve the 17000 level and thus keep 18000 alive before the seasonal changes that come after Labour Day can add another complicating factor.

Interesting that the dollar index fell during the recent panic phase, but the yield on the US 10-year Treasury managed to rally to below the 2.0% level for the first time since late April this year. It seems that foreigners may have deserted the dollar for another safe haven, while in America investors have stuck to the reflex action when in panic mode, by fleeing into the bond market. 

For Wall Street it was a close shave. On Monday at least three significant attempts were made to reverse the tide that had spilled over from the weekend and each of these were soon swamped by the wave of selling. On Tuesday the bulls were more resolute and this must have triggered memories of how often during the preceding 3-4 years a major sell-off took off and threatened market collapse only to reverse trend on a button and reach to new heights. Those who were ‘certain’ that history would repeat itself, again, surely jumped into the market to stock up before prices recovered too much and their efforts may have saved the day for the stock market. But for how long?

Also interesting how quickly and by how much the euro and the yen gained against the dollar during the panic stricken last three days of last week, while many other currencies got slaughtered. The currency wars may have reached a level of stress where it is no longer a series of rather xxx competitive devaluations, but where the changes occur rapidly and difficult to anticipate. From the evidence it seems there are many market players that in a crisis prefer the euro or yen to the dollar. That could be bad news when – not if - a real crisis matures.

To repeat: With concerted effort to halt any developing crisis by most central banks – allies of the Fed – very deep pockets are ranged against such an event. It still is premature to start full celebrations for the long anticipated change in market trends that interest us.  However, what happened last week proves it is not a forlorn hope; it now is just a matter of time and the right circumstances.

Euro-Dollar Chart

The euro has held resolutely above rising support in a long term bull channel, XYZ  ($1.0873).The market turbulence last week had the euro spike higher, clear above steep bear channel, VW ($1.1189). As the stock market problems receded again, it reversed steeply lower to end at the top of the bear channel again. This could be a goodbye kiss, if the euro can set off on a new rally this week. For now, the outlook remains bullish for the medium term as long as support at line M ($1.1055) or else at line Z can hold.

Euro-dollar, last = $1.1187 (www.investing.com)

Dow Jones Industrial Average (DJIA)

During the first part of the move lower the DJIA held below resistance along trend line L (17428), then, as soon as it broke below support at line P (17344), the DJIA fell steeply. The break below bull channel AB (16691) extended below bull channel MN (16597) to test the next level of support at line Q  (15618).

Consistent and sustained support from Tuesday had effect and the DJIA rallied just as steeply, rebounding off line Q to break higher, back into bull channel MN, where it then held below resistance of the shallower bull channel, AB. A break above line B would be near term bullish, but the outlook remains bearish while channel KL holds

Dow Jones Industrial Index, last = 16643 (money.cnn.com)

Gold PM fix - Dollars

Gold price – London PM fix, last = $1135.0 (www.kitco.com)

A week ago the outlook for gold had suddenly shown good improvement when it broke higher from wedge RZ ($1074) and then also managed to just break above resistance at line B($1159). Sadly, that was as far as the new rally progressed; a sharp reversal broke back below the fresh support at line B and extended lower to break marginally back into wedge RZ.

The PM fix on Friday showed some gains, just enough to close marginally above line Z – which could offer some support for the start of this week, but this is still fragile support. 

Gold PM fix - Euro

Euro gold price – PM fix in Euro, last = €1010.6 (www.kitco.com)

The volatility into and during last week had both the gold price and the euro to play with and would seem to have a good deal of fun in the process. Strength in the gold price had the euro price jumping, but then the dollar and gold both slumped lower, which was a disaster for the euro price of gold. The euro price fell steeply, breaking below bull channel KL (€1002.6), but it then managed a rebound off the bottom of the large triangle AS (€980.9), rebounding higher to close the week breaking just back into bull channel KL again. Bullish if the euro price can now hold the channel.

Silver Daily Fix Chart

Last week, silver, like gold, was also just able to break above long term pennant, FZ ( F: $15.00, Z: $14.43) and again like gold was not able to hold the break. It broke back into the pennant droning the market turbulence and on Wednesday it also failed marginally to hold above the support at line Z. By Friday, the price had recovered, but barely so.

Silver therefore again joins the group that faces an uncertain week – gold and the DJIA still as prominent members. Holding above line Z will be a positive, but there is not much room left within the pennant. When it moved closer to the apex within triangle FD (15.94) the break took place to the lower side to remain bearish. At least line Z could offer support. If the same should happen now, it is a long, long way down to support at the bottom of pennant FM ($10.31). Pennant FD will be

Key resistance if the break from pennant FZ is in the expected direction.

Silver daily fix, last = $14.44 (www.kitco.com)

U.S. 10-year Treasury Note

In last week’s report the yield had broken below channel VW (2.144%) as people fled to the bond market safe haven when equity markets all over the globe took a beating. Last week, after the stock markets steadied – mainly orchestrated out of New York – and they all displayed a healthy recovery, the yield weakened back into bear channel VW and also above the 2% base that seems to be the level where the bond market bears take profits. News of selling from overseas central banks might have been taken on by foreign safe haven flight, to have little effect on the dollar or the yield on the US market.  Excess selling was sure to be absorbed by the Fed.

There are widespread comments about a bond market bubble and the move back into the steep bear channel has a bearish bias. However, only after a break higher into the shallower but more substantial bear channel RS (2.334%) would the bear begin to take charge of the market.

U.S. 10-year Treasury note, last = 2.184%   (www.investing.com)

West Texas Intermediate crude. Daily close

The latest official EIA price from Cushing is for 24 August. Previous firm support at line D ($44.72) yielded to the new bear market as fears of new economic weakness were triggered by the stock market panic. The price kept on moving lower, mostly using the steep trend line V ($37.68) as sliding support. At first it seemed that the next level of support at Y($34.02) would have to come into play and be tested for the slide to end.

Price action late last week, after 24^th August, brought promising news for operators in the shale oil beds. The price still has a long way to go for most of them to begin breaking even, but a jump of 10% in the price in one day – largest in 6 years – and followed by another 6% increase, must have re-ignited hope that the future could be more promising than when the slide lower was still in full play. Just like all other markets, it remains to be seen if the new bull will last. At least the price recovered above the important line D to give substance to the new rally – if it holds.

West Texas Intermediate – Daily close, last = $38.22 (24 August)

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