[Intermarket, Weekly] Dollar, Gold and Bond Yield
It's always a good idea to take a step back and look at the big picture. I know it's old-fashioned to look at weekly charts nowadays in the minute-by-minute world, but without a map in hand, one cannot get to the right destination.
What we have here is the Dollar vs. Gold vs. Interest Rates. I feel like a broken record, but here we go again: Stocks and bonds are both financial assets, and in the long run, they are effected by interest rates. These things are all inextricably tied together.
For the last three years, investors have been treating bonds as if they are supposed to move opposite to stocks. And for a while they did, if only fuelled by so-called "flight to quality", reminiscent of the move from real estate to stocks in the early 1980s. Shunning cash, stock market refugees dove into the bond market. I don't have the numbers handy right here, but we know that the amount that has been pumped into the bond market over the past year or so has been a record, kind of like the inflows to equity mutual funds were back in 1999 and 2000.
In terms of sentiment, have you noticed that the reigning diety at CNBC is PIMCO's Bill Gross? If you think about it, he's the only one they trust now, having taken over the mantle from that entire stable of stock bulls led by Abbey Joseph Cohen. You know, maybe its not a good thing to be famous. I still remember that March 1996 "In Greenspan We Trust" Fortune magazine cover...
More interesting WSJ front page stuff, from this morning: "Durable-goods orders rose 2.1% in June, a sign that the U.S. manufacturing sector's long downward spiral may have hit bottom. A survey shows wealthy Americans are increasingly optimistic about the future."
Hmm...less than zero room for error, since everyone on the planet owns bonds now. We're going to need the dustbowls of the 1930s to make these babies levitate more, especially when we see that the yield on the long bond has gone back above the 1998 Asian Crisis low. We anticipated that it would be a fake breakdown, what we call the "pop into the manhole" bear trap on the weekly TYX chart. Since TYX is the bond yield, it must mean that the weekly bond chart must be in a...bull trap?
As for gold, I know all the bugs are hot under the collar, insisting that deflation, weakness in the Dollar and the economy is going to drive it back to $1000 an ounce. I'm trying to imagine what the explanation will be if gold goes up as they expect, but on a recovery! One thing I learned a long time ago is that if you believe in fundamentals, it's cool. If you believe in technicals, it's cool. Just don't try to explain one with the other, as if one can be used to justify the other, and we won't look foolish when one part of the argument goes one way, and the other goes the other way.
Next. In December 2001, we did a couple of e*Trade radio shows, and discussed the Dollar's test the 120 level. We didn't think that it would pass the test and our strategy for the long-term was to shift into gold and the Swiss Franc. It's been a long slide all the way back to just over 90, and we can see that the Dollar is finding sellers here at the 20-week moving average.
Let's take a look at the strategy going forward...
03.07.28 06:44 #