Aye aye aye… distracted and hurried I looked at the chart wrong. Everything written below is opposite to reality (except the deflation part, as both yields decline in the short-term). I misread my own chart and thought the 2 was breaking down and not the 10. Unbelievable. I need a vacation, or a break from my in-day schedule, which is hectic lately. Please accept the apologies of an embarrassed blogger. I guess over years and years things like this are going to happen once in a while.
The yield curve is still doing no better than potentially bottoming, but when viewed nominally and side by side, the 10 and 2 interest rates appear to be considering different courses. The 10 is still up trending and the 2 is breaking down.
That would of course be a positive for the yield spread and a negative for most other assets (esp. with the curve rising in a declining short-term yields scenario) and could be a positive for gold. Imagine if long-term yields were to rise (not predicting it, merely riffing) and short-term yields were to decline? Wow. For now, I’d just settle for a curve rising under the pain of short yields dropping faster than long yields (i.e. DEFLATION!!!!). 😉
 By ‘breaking down’ I mean the 2015 up channel on the 2 year. An actual down trend would not be indicated until it makes a lower low to April.
The 30 minus the 5 is how Stockcharts.com would calculate the 30-5 yield spread. 30 divided by 5 is how I have done it to be more conservative. I am using 30’s and 5’s because I cannot get a spread chart of the 10’s and 2’s during market hours (I am all ears if you can point me in the right direction, using the Contact link above).
Both calculations are looking as if they are in bottoming patterns. But of course we are kept in suspense at the noted necklines. Doesn’t it seem like indicators taunt you sometimes? I recall watching the now very bearish Palladium-Gold ratio taunt me for months before finally registering its signal.
Why is this significant? Well, aside from gold desiring rising curves the S&P 500 generally does not want a rising 30-5 or other spreads, at least in the first phase of a rise. Here’s the NFTRH chart…
Welcome to Cartoon Nation. We have presidential primary races featuring uniquely cartoonish personalities and cartoonish financial TV characters, among many other caricatures posing as serious societal figures throughout the culture.
Earlier we had Hillary Clinton sending out a tweet and tanking an entire stock sector.
Now we have a Fed official, our friendly Hawk-in-Drag James Bullard, actually legitimizing Jim Cramer per this article.
James, here is what Jim needs to do. Jim needs to keep jumping up and down on TV like a caged gorilla. He needs to be the Donald Trump of financial television because that brings in the eyeballs and besides, it is easily understandable by the average American. Ole’ Jim is just stirring the pot, James. He’s just doing his job. This is America, man.
Besides, who cares what Cramer says and who he influences? You are a policy maker (non-voting, though you currently are). Firm up man. This is embarrassing.
Now I am not so sure about the bearishness in the short-term. If today’s reversal downward had to do with this ridiculous news item, then I am taking my profit on the TQQQ short. Did Biotech bleed out into other areas? If so, that’s not bearish in and of itself. Unbelievable, this market and the media circus surrounding it.
From the email to subscribers that accompanied NFTRH 361:
“The Indicators segment beats us all to a pulp talking about yield spreads, but I find more and more that this work should not be easy or readily packaged into sound bites. It just doesn’t work that way unless you are promoting an orthodoxy or an agenda.”
That’s my story and I’m sticking to it. NFTRH 361 out now…
The above title was assigned to this post while writing it and realizing I was blabbing a lot about myself and my own methods.
I finally had the time to do more than skim Robert Prechter’s most recent EW Theorist. I can see why they released it for free, because in it he ran a laundry list of calls that have gone well and one – the US stock market – that had not yet done so (and indeed has been the market that has defined him as a frustrated perma-bear to many) as of its publish date. Well, shortly thereafter that holdout market went well to join the rest of the world.
Here is the link again, if you have not read it: Most recent Elliott Wave Theorist
I should note that I do not currently subscribe, although I have at times in the past. I need to be very clear in my own thinking and trust my own methods, which have been working well, without too much of anyone else’s cross-talk. But I always find Prechter an interesting read when I do have access. He’s beyond interesting, really. He’s pretty much one of a kind.
Some of my observations…
- Prechter mentions exactly what I have harped on repeatedly; how economists (and financial services entities) tend to extrapolate things in linear fashion. He notes “we extrapolate them in fractal fashion”. I on the other hand, extrapolate them with a combination of technical, sentiment/psych and inter-market indicators. Ref. for instance the PALL-Gold ratio, which made a bearish signal months ago. I knew not why, but we certainly respected it and were prepared for the market damage that followed it.
- As noted in the previous post, the guy was right on with Crude Oil, over the long-term. EWI were also right on with Asia and Emerging Markets, while admitting that they have fumbled the US stock market, which “has just floated around as if in a dream”. Well, it woke up last month and I for one could not be happier because finally it is in motion. I care more about motion than direction.
- Gold bugs used to laugh at Prechter routinely. Indeed, I had to use my will to tune him out as his calls for gold’s top rose from 375 to 425 to an eventual 1900, when he was finally right. US stock bugs laugh at prechter the same way now. Anyway, he goes into detail on gold, silver and the miners, calling for a significant counter trend rally in the bombed out sector as well as in crude oil. But these things are within larger bear markets.
- Finally, he makes some good sense of Dow Theory, an art that I don’t pay much attention to, but appears valid and he shows why.
Anyway, the Theorist is well worth your 10 minutes of time if you’d like to pick it up, free of charge. Also covered are China, real estate, etc. It’s a take on markets as only Prechter can take it.
It has been a while since we went around DARPA’s creation (or was it Al Gore’s?) of networked thingamajigs…
Robert Prechter’s August Elliott Wave Theorist is free, no strings. I skimmed it and it is a big enough picture of the markets to be very applicable now. A big review of Dow Theory and US stocks and gold, silver, miners, oil and commodities.
Say what you will about Prechter – and he certainly elicits strong feelings both ways – but he nailed crude oil going back to 2007. He has infinite patience; maybe too much patience, it seems sometimes.
Anyway, the EWT is always an interesting read. Go get it for free…
The Euro is gaining the bid as short covering pushes it higher. Today it is popping through resistance and will try to make that a support level.
The target is 120, which would likely be a good opportunity to short it or potentially long Europe again.
We’ll see. It’s a macro market where letting things play out rather than knee jerking to conclusions is likely to work best until we get a read on the nature of this.