The following is one of a wide range of analytical topics covered in NFTRH 293’s 35 pages this week, much of which is straight ahead technical analysis. But the T Bond market is usually central to an overall macro view at any given time. This segment is not meant to provide actionable direction (other than perhaps to prepare for a potential rise in T bonds yields), it is meant to dig into the mechanics beneath the financial markets in an effort to have people consider that there is much more going on with markets than simple nominal TA or conventional fundamental analysis (PE ratios, growth metrics, reported economic data, etc.) can account for.
US Treasury Bonds
10 & 30yr yields have declined to support as NFTRH projected
Yields on long-term Treasuries have continued to decline in line with our view that was contrary the ‘Great Rotation’ (out of bonds) hype. The [30-year] especially is now close to support and the next play seems like it could be rising yields and declining T bonds.
Our long-term ‘Continuum’ chart; yields approach support
The 30-year ‘Continuum’ view above makes the simple case that players had to be put offside believing in the ‘Great Rotation’ at 4% yields. The nearly half-year decline since then has now satisfied the chart as yields have come to our 3.1% to 3.2% target range, where there is support.
Well, Loretta Mester looks a little hawkish anyway.
She also looks a little like…
To which I’d refer back to my first public article ever written back in the quaint days of Alan Greenspan’s trail blazing foray into financial market experimentation. FrankenMarket Lives. Pardon the Hyperinflation reference. It was the first thing I ever wrote! Young(er) and more naive.
Anyway, it all comes back around and makes sense if you give it enough time.
Read A New Hawk at the Fed? and decide for yourself.
“The real issue is that the Fed has expanded its tool kit so dramatically…” –Andrew Huszar
In line with our theme of outlandish and immoral (in my opinion) Fed policy a former Fed official calls QE a backdoor bailout of Wall Street, which anyone with two functioning brain cells knows to be the case. The Andrew Huszar Op/Ed (Wall Street Journal) Confessions of a Quantitative Easer is I suppose old news, but it illustrates what we have been hammering on for so long now; that Fed policy is serving to pump the stock market and pump up the wallets of asset owners.
QE gets about 10 times the notoriety of ZIRP, but I’ll still maintain that it is this evil tool in the Fed’s ‘tool kit’ that is the main and continuing blight on the system as it not only rewards asset owners and speculators, but punishes those least able to speculate due to limited funds.
Please review this chart again and behold the rigged market. Anyone arguing that the bull market in US stocks is normal is being intellectually dishonest. Yet like agent Mulder I want to believe in the healthy bull story*, but I have to believe the data that has drawn the lines on the chart above.
Many people would consider a drop in the S&P 500 to the 1550-1600 area to be a bad thing. But if the bull is real, and if a secular bull market truly has been created out of manipulation of the T bond market (QE’s bond buying and ZIRP’s 0% rates) then a pullback to test that zone would be normal, would it not? It would feel bad but in reality a successful test of the big breakout would launch the grand new bull. SPX has to drop down to test support sooner or later, doesn’t it?
Well no, it doesn’t because the other side of the coin in the post’s title is ‘When Good is Bad’, meaning that an upside blow off in markets – if that is what is fomenting – would be very bad, as in ‘Silver 2011′ bad, for the stock market with a successful test of support unlikely. That is because a manic blow off would be a terminal event.
We have talked about what is negative for the US stock market. From the signal in the banks vs. S&P 500 to a young uptrend in long-term T bonds vs. the S&P 500. Here is the 2011-2014 market leading BKX-SPX in breakdown mode.
Throw in a bearish divergence in the Equity Put/Call ratio, an elevated Gold-Silver ratio right at resistance and Junk bond vs. Treasury/Investment Grade and the signs of a bearish market are not only there, they have manifested in some pretty good downside in the growth and momentum areas.
But aside from the Dow and Tranny already noted, there are other things that bears should pay attention to, starting as we often do with the Semiconductor index.
Zero Interest Rate Policy (ZIRP) was instigated by a credit induced collapse of the US financial system and perpetuated in December of 2008 by desperate financial policy makers as a fix to problems they created in the first place.
In reality, it is simply an epic distortion of normal economic signals that cleaned up the mess created by previous policy distortions (like the commercial credit bubble of the Greenspan era) by systematically (5+ years and running) main lining new distortions into the system.
So in addition to this picture, which could one day hang in a monetary museum with the title ‘Grandma and Her Savings Account Bail Out Wealthy Asset Owners’, let’s take a walk down memory lane and marvel at some other pictures created by this policy…
Along with the highly publicized loss of leadership from big tech, the US stock market is now in danger of losing another, and possibly more important leader, the piggies or banking sector.
While the weekly chart of BKX has not yet broken down, it is very close to doing so after sporting a negative RSI divergence for the better part of the last year. We should not jump the gun with bearish scenarios, but as always we want to be among those looking forward and ready, just like in 2007, which was the last time BKX-SPX began to roll over in earnest.
Ukraine war hype, China demand drop, GOFO mysteries… these are the short term noise inputs on the gold sector.
US Treasury bond yield spreads, gold vs. commodities (i.e. the ‘real’ price of gold), gold vs. the stock market… these are some of the fundamental considerations that actually matter and they have taken a hit since January.
It is easy to say ‘I am bullish in the big picture’ (measured in years) but it is not so easy to actively manage in the smaller pictures (measured in days, weeks and months) with all of the above noise inputs and more bombarding the poor individual player.
We use shorter term charts to manage the shorter time frames. Daily charts have most recently indicated a bearish set up as bear flags formed across the precious metals complex (with the exception of silver, which never got going to begin with) last week. Weekly charts continue to indicate that an extended and oh so grinding bottom may be forming, but that includes the potential for ups and downs, also known as volatility.
There is also a lot of noise lately in the stock market. The US stock bull celebrated its 5th birthday last month. The last 2 cycles (the manic phase of the secular bull ended 2000 and the cyclical bull ended 2007) were each approximately 5 years long. Today let’s retreat to the calm of the long term monthly charts and get a snapshot of the big picture.
The S&P 500 has a measured target of around 2190 that we have had open as a possibility since the big breakout occurred in early 2013. A measured target is just that, a measurement; simple math. It is not a directive and therefore 2190 is not hype, it is just a possibility.
A ‘White Paper’ article on contrary indicators in the emotion packed gold sector. Make it them work for, not against you.
The gold sector is peopled by a high concentration of contrary indicators because it is a relatively (to the vast world of equities and bonds) small market that offers refuge from some of the damaging aspects of the spectrum of investment products that are supported by the manipulation of interest rates and printed (and digitally created) money supplies. Thus, gold has moral high ground if an asset can be thought to have morality.
There is a lot of talk now about a flattening of the yield curve. This talk has been among the most intense right here at the website you are reading at this moment. A flattening curve is commonly viewed as bad for gold, and according to Mark Hulbert, is an indicator of a coming recession.
Why you should care about the yield curve
But is the curve really flattening or is this all hype based on Janet Yellen’s press conference comments? Here is a chart the likes of which we have been using in NFTRH for many months now, the 30 year vs. the 5 year yield.
MarketWatch shows a similar chart in its article…
Excerpted from the 31 page NFTRH 283 (dated 3.23.14), which also thoroughly analyzed the precious metals and several other markets from a technical standpoint.
Gold’s Macro Fundamentals
This spike in short-term yields (2-year shown) is what harpooned gold last week and finally got it under control.
More importantly, this spike in the 2-year vs. the 30-year really hurt gold.
These spikes predictably came as the FOMC successfully managed to get the market thinking about an end to the damaging Zero Interest Rate Policy, ZIRP.