The Canadian Technician

How bonds / currencies affect your stocks

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Once again, the USD currency is dominating the market moves today. Slight change in direction in the $USD, and everything followed. The recent pullback in the USD has been aggressive. BUt look at bounce off the fibonacci retracement line. Typically, when things pull back, they pull back to one of the 3 main fib lines. By only pulling back 38% this would mean the USD is probably still in a roaring bull market.

Dashboard Currency 20120130


We started with the Dollar Index up a full 1/2 cent today and that put negative pressure on the equities and commodities.

$USD 5 year weekly 20120130


When the US dollar moved today, it immediately affected gold, oil, and copper. That puts downward pressure on equities related to all of those companies that get revenue from commodities which is a large part of the Canadian Index. The commodities are also an important part of the US indexes. It also affects companies that get foreign revenues so it influences how much they get in exchange for the dollar.

 

Now let's talk bonds.

The Bond Market started to move down in yields a week ago. When the TV talking heads (commentators) say that the bond market and the equity market are telling different stories, what does that mean? Well, usually the currencies, then the bonds, then the equity and then the commodities. Equities hit highs on Wednesday, but the bonds let go earlier in the week. But you can see the bond yields are falling quickly.

But the  five year already hit record lows today. The 10 year is near the lows. The 30 year is plummeting in yields. If you look back at the 3 month, it can move down that distance in 2 days. Basically to zero yields.

Dashboard bonds 20120130


 

 

Copper needs to hold the 200 day or we are not happy. It pulled back today.

Copper 20120130


It also sold off in higher volume.

Watch closely, so far the $SPX topped in the range we wrote about in the article titled Looking for Trouble. I mentioned between 1320 and 1345. So far it has peaked at 1333.

Caution is warranted.

 

Good trading,

 

 

Greg Schnell. CMT

 

 

 

Greg Schnell
About the author: , CMT, is a Senior Technical Analyst at StockCharts.com specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More
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