This week's Commodities Countdown video is jam packed with changes. Does the US Dollar complete the rollover? Do the bonds break through resistance on the price and momentum charts? The next few weeks are really important for the bond markets based on my work. Most of the Commodities moved under or are still under the 10 week moving average. The 800 pound gorilla exception to that is oil. Crude oil makes up 23% of the $CRB Index.
Let's start with the Dollar. With lots of negative divergence the Dollar looks set to break lower. This should be a meaningful move in the dollar that lasts a few months if the bigger picture charts have the momentum right.
Look at this interesting correlation with the $USD and the $SPX. As the Dollar bottomed, the $SPX topped. The equity market remained range bound as the $USD moved higher. If the analysis is right that the Dollar is topping, this could give a massive push for the equity markets after consolidating for 5 months. A lot of momentum has been lost but Friday was a nice move for the indexes. With that as a backdrop, the equity markets better get a stampede style bull kick to this rally soon. Friday was the start of the Calgary Stampede, so perhaps we just needed to get all the bulls together to get this party started. Get Kickin'!
Some of the dollar crosses made a higher high and a higher low this week against the the $USD. The Canadian Dollar, the Euro and the Swedish Krona all did. The others were the Aussie Dollar, the Pound and the Yen. The Aussie had an outside bar with a lower low and a higher high and a close near the top of the bar. Bullish. The Pound had an inside bar this week. Mixed opinion. The Yen had a lower high and a lower low, but closed higher than last week's close. Slightly bullish.
Bonds have some big challenges ahead. It looks like all the longer term prices are heading higher, pushing yields lower. This will tighten the yield curve. I published a ChartWatchers article this weekend on the Yield Curve that you can read by following this link. Why All The Talk About The Yield Curve Flattening?
In the chart of 10-year yields below, you can see that the yield is very close to breaking the uptrend. On the momentum shown by the PPO it looks like it is already breaking the trend. The Full Stochastic is a long period (80,3) that is also breaking down. The negative divergence on the PPO and the 6 month head/shoulders topping structure on the yield itself just add more weight to the apparent break. We have been on this trade for over a month now, so regular readers should not be surprised by this.
The thirty-year yield ($TYX) looks equally concerning. The momentum line is almost 2 years, the actual yield trend is two years. It is very common for major directions in bond yields and the $USD to happen around the first part of July. I would suggest a big break in the trend would qualify as another important move.
Intermarket analysis is the analysis of stocks, bonds, currencies and commodities together. It is a continuously evolving puzzle that I am challenged to think about every day. I love to think about it. One thing I am struggling with in my intermarket analysis is how similar the yield charts and the Gold chart are in appearance. I am seeing gold stocks rally even while Gold goes lower, so I am expecting a surge in Gold. But if I am expecting these yield charts above to drop, is the Gold chart leading the direction and my Gold related trading strategy in jeopardy? Time will tell, but the change in the $USD could send these charts different directions. The left edge of the chart shows they have not always been so correlated as they were inversely correlated in 2012 and 2013.
Let's just say that as the warm weather shows up this summer, there is a background Greg processor trying to get these pieces to fit together. Maybe the light bulb will flicker while on the deck, on the boat, on the golf course or just in my office, but it is a macro view that needs some resolution for me to be more comfortable where all this is going. The recent implosion of Copper adds to the confusion.
The bond markets don't have to top at the same time as the equity markets, but its always good to keep studying whats going on relative to each of the other markets.
On the video, I work through the various $CRB components. Offline, I roll through lots of other charts to get a wider view. Copper, Steel (SLX), Coal (KOL), Zinc, Tin, Nickel, Lithium, Rare Earth Metals, Gold, Silver and Platinum are all breaking down. In addition the Industrial ETF XLI and the Transportation Index ($TRAN) have also broken the uptrend. I like to rely more on the railroads (DJUSRR) rather than $TRAN, and the $DJUSRR still looks good. But the broad weakness of the industrial metals and industrial companies is a problem for me to piece together. It is easy to point to the tariff discussion, but is it enough to become a canary to a global manufacturing disruption?
Let's go look at the $CRB index. Two things are starting to show on this chart.
1)The price action is starting to hover near the low side of the 20 week moving average. Real generally, this chart likes to live above or below. There was a 4 month period in 2016 where it oscillated around the 20 week MA. So if we are going to be living under the centre, that's bearish. If the $USD can change that to bullish that would be great. However, the dollar moved lower every day this week and this index also moved lower.
2) The PPO is testing the up trend right here. This needs a very bullish resolution. Having this chart break with everything else like yields, bankers, brokers, industrials etc. suggests a big bucket of trouble.
Here is the fresh new July 8th edition of the Commodity Countdown. I focused on the important resistance on the bond charts as well as the currencies. There are some important correlations between the $USD and the $SPX that need to be watched closely.
The Nasdaq and the Toronto Stock Exchange both tried to rally this week to resume their breakouts to new highs. There was some improvement in the precarious Bullish Percent indexes.
The Final Bar recording for Thursday July 5th contains information on the potential for rollover in the $USD. It also covers the recent surge in the advance/decline data.
For Canadian investors, here is a copy of the most recent Canadian Technician video. Canada suffered a failed breakout to end June. But if you are interested in Gold and Silver stocks I roll through 40 of them.
If you are missing clues on signals in the market, follow me on Twitter and check out my Vimeo Channel often. Bookmark it for easy access!
Greg Schnell, CMT, MFTA
Senior Technical Analyst, StockCharts.com
Book: Stock Charts for Dummies