You did not hear about the red dotted line (AKA the monthly EMA 100 ‘limiter’) on the ‘Continuum’ anywhere else at the height of the Great Rotation Promotion. Just here; though I recall Jeff Gundlach remaining firm on T bonds in the face of the hype. Now the herds pile into T bonds as risk starts going ‘OFF’ (as so many indicators have hinted could happen).
Ah, but there is a support level we have had on radar since the yield topped out. I already sold TLT (20+ year bonds) and will probably do the same with IEF (7-10 year) shortly, keeping bonds in the 0-3 year range (come on Janet, end ZIRP). TLT is getting over bought and the momo herd is in motion running from stock market risk into T bonds. Unsavory characters they are, with little moral compass and even less common sense.
Also at some point, another risk ‘OFF’ asset is probably going to find support, bottom out and lead a coming phase. We’ve got a 2014 Macro Pivot theme in play after all. First the gold bug leaders have to finish getting debunked and strung up by the true believers.
Among its 29 pages of high quality market analysis, this week’s NFTRH (#287) reviewed the Commitments of Traders (CoT) structures of a few markets and their implications.
The above CoT graph clearly shows that gold has declined as the structure improved (red arrows). It then bottoms with the circled extremes and rises in conjunction with a degrading structure (green arrows). Gold is still on its journey toward bottoming.
The 10 vs. 2 is, you guessed it, unfavorable for gold once again as it has been for a week now. The declining spread (2’s up harder than 10’s) indicates that risk is coming back ‘ON’ in the markets as people dump their liquidity safe havens in the 1-3 year realm.*
The good news for gold – should risk go ‘off’ again – is that it is no longer part of the ‘all one market’ syndrome. It’s a risk ‘OFF’ item, which is what it should be. Tune out the myriad rationalizations by conspiracy detectives and realize that gold is going nowhere until a counter cycle is indicated.
Think about the year long topping process of up and down spikes on the HUI Gold Bugs index in 2011. Now think about things that may be working on replicas of that activity (hello US stocks) and things in the mirror that may be working on the inverse of it (hello grinding and dispiriting gold sector).
Now think about how long these processes take to play out and the patience involved. Also think about trading or defaulting to cash, because at times of change the volatility is something to behold (going both ways).
The spread between 10’s and 2’s is widening again today and that is good for gold and not so good for the stuff most people cheer for, like the stock market and US economy. Again, I remind you that no one day should be taken in a vacuum, but this is now two days in a row of Yield curve strength strung together.
This is no comment on anything other than the spreads, which as they stand now are not in a gold bullish alignment. Sorry, but that is what the charts are doing at 3:07 ET on a Friday afternoon. What they do from this moment on is anybody’s guess.
 I have to claim credit as being one of the first and maybe loudest when it came to talking about yield spreads before the recent drop in the yield curve. But Mike Ashton has professional experience dealing in the credit/debt markets as I recall. His post is very interesting to a geek like me, and should be to all market players because the interplay between Treasury rates is key; even more so than any individual markets we may be micro managing. So many things spring from interest rate relationships.
I saw a story on MarketWatch on Monday which declared that the “Treasurys most sensitive to rising interest rates” had been ditched by investors while those investors instead were “gobbling up longer-term securities,” causing the curve to reach its flattest level since 2009. I thought that was interesting, since an inverted yield curve is a valuable indicator of potential recession.
I have not noticed too many gold sector experts talking about certain indicators that are no longer favorable. Funny how that goes. It’s short term stuff though, so maybe the idea is to go along and get along. Don’t ruffle feathers or upset the apple cart. NFTRH 281 ruffles a few feathers but beyond the near term has significantly higher targets for later in 2014.
There is also some crackhead stuff in here as 6 Semiconductor charts that I find constructive are presented (with targets) in the event that the SOX holds its breakout and the market goes into blow off mode.
In all 34 pages of quality reporting. NFTRH 281, out now.
I get it. I continue to look silly posting bearish things as the market levitates. Well, here is another silly bearish nugget for good measure. Sure, the sky pilots in junk bonds are chasing yields to the heavens. Why, just look at HYG go!
But its ratio to long-term Treasury bonds is not so stellar. It’s just another small divergence to the bull festivities, but there it is none the less.
I happen to think nominal T bonds have a good shot at rising soon. If that should happen, for risk to remain ‘ON’ junk bonds had better rise even faster.
The economy and the stock market depend on inflation. Get serious giddy stock bulls, they inflate, you make money. They fail to inflate and the tide turns deflationary, your gains go poof, money heaven. I’ll dig out some of those policy-profits-S&P 500 corollary charts again soon enough.
The relationship between TIPS (inflation protected) and TLT (regular long-term T bonds) is one indicator of inflation expectations and while it seems to have spent the last 2.5 years in bottoming mode (allowing Goldilocks to pig out on porridge) it is still going nowhere.
Along with the indicators and parameters shown in the last few posts, the TLT-SPY ratio can be informative. We had a good ‘risk OFF’ thing going as TLT crept out of the Falling Wedge vs. SPY. Then we had an impulsive scare fest in the market as the VIX exploded, people got too bearish and TLT-SPY took a corrective turn down right at the 200 day moving averages.
So now, a parameter to the potential resumption of the bear case would be TLT-SPY holding the MA 50’s. Markets are making sense again, aren’t they? And we have not even talked about the daddy of all indicators, the gold-silver ratio. I love this market.