NFTRH Update 9.6.13, Market Review (Pre-Jobs)

Interest Rates

It looks like interest rates could get to target all in one big gulp after all.  But the employment report this morning could have a lot to say about that.  Unexpected weakness could bounce bonds and drop yields, while a strong report could spike yields to or through the monthly EMA 100 (red line).

tyx

Then things would get interesting because the long bond’s yield would need to either do something it has not ever done (going all the way back to 1980) and break this descending moving average or foment a potential asset market liquidation scenario and flight to T bonds (declining yields) as a contrarian play.

tyx.ust2y.au

Within the general rise in T bond yields, note that the shorter the maturity, the firmer the rise in yields.  In other words 2’s, 5’s and 10’s are rising in yield faster than the 30 year and that is not a positive for gold because it is flattening out the yield curve on all measures except for the ZIRP manipulation at the Fed Funds level, which is rising and could be indicating some level of systemic stress in the making, as it often does when it spikes.  Here is the 30 year yield vs. 3 month T bills…

tyx.irx

Precious Metals

Thus the correction continues.  I would advise tuning out all of the noise whether it be Syria, conspiracy against the metals or what have you.  Players got over excited and they are now getting corrected for that.  HUI 240 (the SMA 50 is now at 243) is the preferred support but only a decline below 217 and a lower low to the early August low would put the bottom scenario in peril.  Meanwhile we wait and watch the macro backdrop.

By the way, you will notice that there have not been any updates thus far this week and that is because I do not want to hit you with more noise amid an overly noisy backdrop highlighted by Syria, ‘jobs’, ‘yields’ and ‘taper’ when nothing has changed since NFTRH 254; we are on a correction and all targets remain open (HUI 240 +/-), gold 1350 (consider 1300 viable as well if things get shaky) and silver with valid supports from the current level all the way down to 20 or so.

Broad Markets

Short version… Depending on this morning’s much anticipated payrolls number I would like to see the S&P 500 drop to 1550 (+/-) prior to a rally attempt at very important big picture support.  Leading the way down are the banks (BKX-SPX ratio), which have led the rally out of Q4 2012.

On the plus side, take a look at China.  It is looking like it wants to rally having popped hard in the last few days.  With China, the emerging markets are getting a pop.  With the economy firming, one would think that commodities would eventually get a bid as well.  Again, let’s get through ‘jobs’ and see what T bonds do and try to make a sensible analysis of the situation in NFTRH 255.

Another positive divergence is in the Semiconductor sector, which could be an early indicator of a new rally in US markets (again, preferably after a drop to SPX 1550 +/-) coming after the current correction (which is still in effect as long as indexes remain below the 50 day averages) plays out.

Bottom Line

  1. Treasury yields are pushing the limit and the yield curve (30-2, 30-5, 30-10) is currently gold unfavorable.  Risk is very high of a market liquidation as yields reverse.  Going the other way, risk is also increasing of a breakout in inflation expectations (the TIP:TLT ratio is firming again).  Stay tuned.
  2. The precious metals are still in a correction of the impulsive burst off the bottom.  This remains a healthy process as long as the above-noted parameters remain intact.
  3. Asia and emerging stocks are firming.  Let’s see if this manifests in out performance vs. the US and potentially a coming inflationary phase in broad markets.

See you Sunday with #255.