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Gold, US Equity & Bond Markets

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Gold, US Equity & Bond Markets

Global equity markets are rallying in a 'risk-on' trade while safe haven assets such as treasury bonds & gold are being sold as a result of the French elections & lessened probability of a Frexit. Here's a snapshot of the risk-on & risk-off assets: Gold, U.S. Treasury Bonds & a few the major US stock indices.

Starting with the safe haven assets, GLD (Gold ETF) is being sold today along with treasuries as of flight out of safe-haven assets. The sell-off in GLD could also be attributed to the fact that it just recently reached the most overbought readings since in over a year following an extended rally. The 3 horizontal lines just below are the former resistance zone that should now act as support.

GLD daily April 24th

GLD daily April 24th

IEF (7-10 year Treasury Bond ETF) is currently backtesting the trendline that defines the top of the recent basing pattern with horizontal support just below. My preferred scenario would have this overbought relief sell-off ending soon with the next thrust up towards the yellow downtrend line while TLT (20+ year Treasury Bond ETF) is currently backtesting horizontal support with the downtrend line of the basing pattern just below. My preferred scenario is a successful backtest/reversal off the top of that basing pattern followed by a rally to the 127.25 level. These ETFs represent bond prices, which move inversely to bond yields. Bond prices up = yields falling which typically is a result of lower economic growth expectations and/or a flight to safety in expectation of weakness and/or volatility in the stock market.

Moving on to the equity markets, SPY (S&P 500 tracking ETF) is testing the near-term downtrend line resistance while still well off the March 1st peak while we have YADH (yet another divergent high) in QQQ with all other US stock indices still trading below their March 1st highs.

Although still trading below its March 1st highs, IWM (Russell 2000 Small Cap Index ETF) is the only index that I'm seeing some potential bullish developments with today's French elections relief 'risk-on' rally as a daily close above the 139 resistance level / top of multi-month trading range (sans late Feb failed breakout) & bullish zero line cross of the PPO signal line could open the door to new highs.

IWM daily April 24th

IWM daily April 24th

While today's early gains are impressive, along well withing the range of the daily swing in the market in recent months, both to the upside & downside, other than the breakout in the less significant small caps, I don't see many technically significant developments in the charts although should the equity markets continue to substantially build on these gains while both treasury bonds & gold continue lower & clearly move below the lower end of the aforementioned support zones, then all we have so far is just more 'noise' within the recent multi-month down-to-sideways trading range in the stock market.

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2017-04-24T10:27:58+00:00Apr 24, 2017 10:27am|Categories: Equity Market Analysis, Fixed Income (Bonds), Gold & Commodities|Tags: , , , , , , , , , , , |8 Comments

8 Comments

  1. rsotc April 24, 2017 10:57 am at 10:57 am

    FYI- The website went down for about 15-20 minutes when as this post was published earlier. The issue has been resolved but as always, please let us know if you are experiencing any technical issues with the site.

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  2. malejandro1972 April 24, 2017 1:55 pm at 1:55 pm

    YADH!!!! LOL. close to a sienfeld catchphrase!

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    • rsotc April 24, 2017 2:32 pm at 2:32 pm

      Exactly. I could just hear Elaine Benes saying: Market breadth continued to deteriorate but the Q’s kept moving higher… YADH, YADH, YADH”. Maybe I should change to it Yet Another Divergent High Again (YADHA).

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    • rsotc April 24, 2017 2:37 pm at 2:37 pm
  3. lee1 April 24, 2017 3:17 pm at 3:17 pm

    I keep questioning the reliability and usefulness of these divergence indicators as the S+P is not more than 30 points from all time highs now despite divergences pointing to an impending correction for months now but one that has not come, like every other time you thought the market would correct based on divergences for many, many months now only to see the market go to all time highs; not at all impressed by them as they seem to simply keep one on the wrong side of the market more often than not, constantly expecting corrections but missing out on all time highs time and time again. If the markets go to all time highs again now then it will only confirm for me that these divergence indicators are meaningless and one can do just as well by flipping coins in hopes of guessing market direction.

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    • rsotc April 24, 2017 6:13 pm at 6:13 pm

      Here’s the reply that I posted to your similar comments regarding divergences not working within the trading room:

      No offense taken. You’ve said that several times before recently, usually whenever the market trades up over 1% but never when it is down 1% or more. My reply now is the same:
      – Yes, not all divergences play out for a correction but the vast majority of the time they do.
      – Divergences are NOT a sell signal, merely an indication that a impending trend reversal is likely, be it a rally with positive divergence during a downtrend or a correction following negative divergences in an uptrend.
      – If I’m not mistaken, every signal divergence pointed out in advance on the daily time frame on the broad markets in recent years did play out for a tradable correction or rally.
      – With that being said, I will have to agree with you that, at least only for the extremely tech-heavy Nasdaq, that divergences just seem to build without playing out for anything more than a minor pullback in recent months but once again, you seem to ignore the fact that the divergence shown on that QQQ 2-year daily chart posted earlier today, every single one of them except the current divergence (which is still intact), played out for a very significant correction. In fact, those 4 previous divergences over the last 2 years preceded drops of 26%, 17%, 8% & 6% in QQQ (although that first one was a flash crash that “only” resulted in a 19% drop in the underlying index, $NDX).

      Finally, if the market goes to new highs, which it hasn’t (the market being every other index besides the Nasdaq Comp/100, all of them more diversified & inclusive of the various industries & sectors in the economy) & burns through those divergences, than you will be correct & hopefully profited a good deal from your adamant views that the market is going much higher before a substantial correction.

      To me, I see one of the worst R/R profiles for being long the broad market at a time where the primary trend is bullish in a long time & until & unless the market (SPY, DIA, MDY, IWM, WLSH, etc..) makes new highs with the divergences & other red flags dissipating I’ll continue to trade both long & short but with a net short bias/exposure but focusing the majority of my trades on the best looking individual sectors & stocks.

      The broad market (S&P 500) is comprised of 11 sectors. All but two (and only one as of last week with XLK barely eeking out a new high today) trading below their ATH’s, many of the well below. That is a not a sign of a healthy market. The other sector beside tech (XLK) as of today trading at new highs is consumer discretionary (XLY) which by no surprise, has an extreme 14.2% top-heavy weighting in AMZN. Still just a handful of stocks, the FAAMGs, doing most of the heavy lifting.
      (end trading room comment reply)

      To add to that, as you point out & I do recognize, it can be much more difficult to predict the future direction of “the stock market” as it is a compilation of thousands of stocks included in every industry & sector. Hence, one of the reasons that broad market analysis (with some exceptions) is free to the general public. However, using divergences to identify tops & bottoms in individual sectors or stocks, of course along with other technicals to help confirm the timing of the trend reversal, is much easier & where the best trading & investing opportunities lie IMO. Here are just a few recent examples posted on the site:

      Financial Sector (XLK) so far down 9.5% from its divergent high on March 1st:

      Steel Sector (SLX): Divergences highlighted but scenario drawn showed one last thrust (another subsequent, smaller divergent high following the larger divergent high, very similar to the current technicals on XLK) before SLX would go on to break down below the wedge/uptrend line, triggering an objective sell signal:

      Divergence works just as well identifying bottoms as well as tops as CCE, which was added as a Long Swing Trade + Growth & Income Trade the very day after it bottomed from a 43% bear market illustrates. CCE wasn’t added as a long position simply because it had divergences as those divergences simply indicated that a major trend reversal was close at hand.

      The timing for the entry on CCE was based on the other technical developments discussed at the time. At this time, regarding the broad markets, particularly QQQ, we need to see a break down below my critical support level (recently posted on the 30-minute charts) as well as the 5 FAAMG stocks all break below their respective key support levels posted the other day to trigger a high-probability sell signal. Even if the FAAMGs continue to lift the Q’s for days, weeks or months, there will always be plenty of trading opps on both the long & short side on various sectors & stocks.

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  4. Eric K April 24, 2017 5:13 pm at 5:13 pm

    Randy thanks for the update on bonds! Very useful since I have a 401k with very few options (SPX, IWM, EFA, TLT, Cash). The TLT move, if it plays out, would be close to 5%.

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    • Eric K April 24, 2017 5:18 pm at 5:18 pm

      Should have said 3.5%

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