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When scanning the landscape from the surface, all appears to be relatively calm, as the indices continue to trade above their respective 50 and 200-day moving averages, which from a technical viewpoint, remains favorable and should be provided the benefit of doubt until or unless proven otherwise. However, when one digs a bit deeper, there appear to be some potential distress signals which could ultimately weigh on the markets forward progress. For example, despite recovery high’s in the indices, new 52 week highs have contracted, whereas new 52 week lows have expanded. In fact, last week, on two occasions, we witnessed the largest amount of new lows on the NYSE this year. Furthermore, the tape remains extremely “split” and selective, which suggests that not all is moving in “harmony”. For further evidence that the environment may be facing some formidable headwinds in the not too distant future, we direct your attention to the action in the 10-Year Treasury below, where the benchmark now sits at 4-year high’s having breached the 5% yield level:
Above is a P&F chart of the 10-Year Treasury Yield (Courtesy of StockCharts.com), which appears to be tracing-out a bullish inverted H&S (head and shoulders) pattern. With the latest row of X’s exceeding the previous high at the 49 box, the bullish price objective is 59. Although the count suggests a 5.9% yield, the 55 box high back in ’01 should provide resistance ahead. Nevertheless, should the trajectory persist, we would more than likely anticipate a squeeze on the overleveraged consumer, which from a “Big Picture” perspective would have long-term implications, while potentially acting as a weight on equities markets in the short-term. Also, as rates move higher, it’s no surprise that the utilities are finding the footing slippery as well, evidenced by the chart below:
The 3-year daily chart of the DJ Utilities looks ominous. Notice that the 50-day moving average is now about to pierce the 200-day moving average on the downside. While the RSI (relative strength) is in oversold territory at the 30 level, a bounce could be expected, yet, the pattern of lower highs and lower lows does not bode well. Moving forward to the metals, both gold and silver remain en fuego. While both investors and traders have attempted to isolate “the top”, those who have exited their positions are finding it extremely difficult to angle their way in for re-entry at lower levels thus far. Although both are overbought and in need of some consolidation, either through price, time, or a combination thereof, there’s no doubt that the secular bull remains in tact. Interestingly, at today’s prices, 1 ounce of Gold buys approximately 47 ounces of Silver. Historically, the ratio is in the 17-20:1 range, thus we would not be the least bit surprised to witness a further narrowing in the spread, albeit at much, much higher prices!! The world remains awash in liquidity. How is one to know, now that “Big Ben & Co.” have done away with M-3? Did they not ask the masses for trust in “Team Transparency”? The price action in Gold and Silver are telling us. While the Fed and central banks worldwide contend that inflation is under control, or non-existent for that matter, the “whites” on their knuckles are starting to show, as they grip the stick and continue to force feed baby incremental rate increases, all the while they have both feet stomped on the pedal-to-the-mettle in an attempt to engineer the soft landing. What to make of it all? We’re not quite sure. However, one thing is for certain from our perch, and that is the continued systemic destruction of the purchasing power of the dollar (i.e. inflation), or as we refer to it as the “transfer and confiscation” of wealth. Somehow, we get the feeling that this plane is coming down without any landing gear, thus buckle-up, close your eyes and buy gold and silver with both hands!!
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INFORMATION The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
