The Flames Keep Flickering

Marking time. That was the theme last week and little has changed. Precious metals remain under severe and sustained pressure – and keep bouncing back, just to get clobbered again and again. However, the flames keep flickering, with promise of the phoenix arising out of the ashes. The question really should not be, “When?”, but to ask “How high?”. ‘When’ shows impatience and doubt; to wonder ‘How high’ shows fortitude and certainty; far better sentiments as 2015 moves to its close. Better to look forward to 2016 and the New Year. The signs are there in the flickering flames that, when read properly, foretell that 2016 will be the year of the bonfire!  

While the flames will purify the metals, other structures are not flameproof and we can expect them to become incinerated; turned into valueless ashes. On Friday, the expiration of derivatives, which traditionally became an exercise in market ramping,  saw the DJOA down by nearly 400 points. Worse, there was no late rally; attempts to trigger one soon failed and the DJIA closed on its low. Almost unheard of on this special day. Perhaps a foretaste of what 2016 could bring, despite the Dow volume not even half of what it used to be long ago, when Wall Street was a real market.  

While Wall Street may have finally reacted the way it was anticipated to do with a – at last! – increase in the rates, the equally anticipated ‘strong dollar’ is as yet MIA; time will tell whether that will change to KIA in due course. The desperation which is so visible in the immediate aftermath of the rate increase is not sufficient to keep either the DJIA or the dollar in the lofty reaches where they were assisted in order to present a picture of health of the US economy. Its face is losing the gloss of its make-up and the true ravages of its decline are becoming more apparent.   

When I read through the above again, it struck me that this is more poetic than at any earlier time. Perhaps it is the prospect of momentous changes in the not too distant future that brings a mood of having to document this period of upheaval in the lives of so many people. A feeling similar to what the authors of the great epic poems may have felt, if this time not empowered by the same ability. 

My best wishes to all who will be celebrating holy days in the near future. May you enjoy peace and good companionship.

Euro-Dollar Chart

The rather brief – so it seems – strong reaction of the dollar to the expected small jump in rates brought about a correction in the value of the euro. Technically, the euro is holding to its bull channel despite the minor correction, with support still at line D ($1.0677) and then line L ($1.0624). Resistance at line Q ($1.1179) remains the barrier where a break higher can confirm the trend.

Euro-dollar, last = $1.0868 (www.investing.com)

Dow Jones Industrial Average (DJIA)

Dow Jones Industrial Index, last = 17129 (money.cnn.com)

The latest rally again failed to break and hold above resistance of line L (17839), to reverse and settle between line L and support at line W. The weakness on Friday, at expiration of the derivatives, the close was marginally below the support of line W ( 17162). This break has to extend lower this week to confirm, else the sideways and volatile consolidation between lines L and W should continue.

Gold PM fix - Dollars

Gold price – London PM fix, last = $1063.5 (www.kitco.com)

The channel ratio of the channel pair JKL is 381:619. The 382:618 ratio is typically associated with a strong channel. Gold has now broken sideways from channel KL ($1084) for a bearish signal and dipped lower to briefly break below the support of line R ($1062), but this break did not hold – at least so far. The move lower found support near line D ($1054), breaking just below on one PM fix.

Last week it was thought that as long as channel KL holds as support, the price of gold could be at the point of a good rally. This has not yet materialised. Now the time for only ‘a brief break’ below channel KL is getting tight and hopefully this may be the week when we see some positive action in the gold market.

The way gold rebounds from a waterfall attack, of which there are now often more than one on most days, is the motivation to believe that this lies within the bounds of the possible. All it needs is a good bounce and no immediate waterfall attack.        

Gold PM fix - Euro

The euro still stands relatively firm against the dollar, which keeps the euro price of gold within the same narrow range of  the week before – below the large and long term triangle AS (€999) and holding close to support at line Y (€979.3), to prevent a definite bearish break below the large pattern.

Any sustained break below the support would be a break below the triangle before leg 5 has been completed and in the ’wrong’ direction. Such premature breaks tend to be steep and sustained. A falling euro price of gold can be caused by a new bear trend in the metal, or because the euro consistently outperforms gold relative to the US dollar.

Euro gold price – PM fix in Euro, last = €979.8 (www.kitco.com)

Silver Daily Fix Chart

Initially, following the break below bull channel KL, silver held to support along line S ($14.04) – the extension of the lower boundary of the large pennant GS. But only until last week; under a sustained onslaught against the precious metals, the price of silver dipped below line S to seek support at line G ($13.41), which, so far, has held firm.    

As for gold, the break lower below line S may later seem a brief and limited event, a relatively frequent occurrence for even large strong chart patterns. It would be a good experience to find the price of silver using the rest of 2015, brief as this is, to begin a rally back above line S, moving higher. As has been stated frequently by a number of commentators, such a recovery depends on the supply of silver falling short of demand, so that the price can break free from the current stranglehold.

Silver daily fix, last = $13.82 (www.kitco.com)

U.S. 10-year Treasury Note

Since late in 2013, the yield on the 10-year US Treasury note has settled in bullish triangle NF (N: 2.340; F: 2.062). The first leg down, from support at line N down to line F, was a sustained if volatile rally – with near term volatility becoming a typical feature of the medium term Treasury market. The rising leg 2, three times tested the support of the market at line N before reversing lower into leg 3.   

Still with quite high near term volatility, leg 3 briefly touched the market resistance at line F before turning bearish into leg 4 again. So far, the fourth leg has failed to complete by reaching line N again. If this pattern is to develop normally, as about 85% of such narrowing patterns do, the yield has to reach line N to complete leg 4 and then reverse into leg 5, later to break below the triangle.

It is difficult to imagine what the circumstances and driving forces could be for the yield to behave in this manner. More likely, then, is a break above line N at the end of leg 4, to become very bearish.

U.S. 10-year Treasury note, last = 2.197%   (www.investing.com)

West Texas Intermediate crude. Daily close

WTI crude – Daily close, last = $34.73 (Investing.com)

Another week in which WTI crude lost more than a dollar. After twice holding at support from line S ($41.28), the support gave way and the price continued lower to also break below the $35 level. This move below bull channel RS and into bear channel YZ, with support at $30.55, does not spell anything good. Firstly, even if the decline is because of excess supply, it points to slack demand for oil from the global economy. That spells trouble for more than just the US. However, with the massive financial commitment to shale oil extraction, US banks and the financial system is over-exposed to debt that is unlikely to be serviced for quite some time; perhaps long enough to precipitate a new financial crisis.

As was done with mortgages in the run-up to the mess of 2007/8, it is certain that the shale oil producer debt has been packaged and sold to pension and many other funds. The value of these securities must already be very low and the losses faced by their holders need to deliver only one default or the failure by a fund to remain liquid to topple a series of dominoes. The break below channel RS could be a match to begin this process.

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