NFTRH Update; Miners, Gold, Stocks, Yields & Inflation, Amid the Noise

HUI is dropping further into the support zone.  We are giving this down to 180 or so, which would get it quite over sold if registered.

hui daily chart

S&P 500 continues to lurk vulnerably below the SMA 50, but the market has positive divergences in the ultra strong Semiconductor index and the very firm and constructive Banks/Financials and Transports.

spx daily chart

On the subject of Banks/Financials (and Semis for that matter), I want to present a graph from Citi showing what their research has noted to be the worst and best sectors in a rising interest rate environment.  This was actually presented in an NFTRH+ update on the Biotech sector yesterday as a negative caveat to the bullish case for that sector.

Note worst performers in a rising rate environment:  Utilities, Consumer items, REITs, etc.  Note the best performers: Financials, Banks, Energy, Autos, Semis, Materials…

sectors and yields

It’s just an FYI because rates are rising (though at the SMA 200 marker).

10 year yield daily chart

The US dollar is bouncing…

uup daily chart

And everybody’s getting hysterical about the firm economy… oh, about 6 months after they should have been on alert for it (ref. the Semi equipment trend we began following in the spring).

Here is what matters.  We need to understand whether this is going to a) persist and b) if so, do so with a rising yield curve and ‘inflation expectations’ backdrop.  Here is the state of the yield curve as of yesterday’s close.  At the least it retains its candidacy to make a bottom because it is above the SMA 50.

yield curve

In-day I subtract the 5 year from the 30 year to get a feel for what that curve is doing (I have not found real time access to the 2yr yield).  This too remains a candidate to continue rising as it is in a flag above the SMA 50.

30 yr / 5 yr yield spread

Now check out the TIP-TLT ratio, which is also still looking quite perky today.

tip-tlt ratio

Of course we have the ‘Big Jobs’ event tomorrow.  If you have not seen it, I made a wise guy post trying to make the point that all of this hype should be tuned down.

Read and Listen to the Media, Be a Day Late and a Lot of Dollars Short

I believe it will be strong because that is what our indicators like the Semis and Palladium-Gold have been implying and because ISM Services and Initial Jobless Claims imply as much.  But gold and silver may be flushing out the momentum players (thankfully!) in anticipation.  If we go inflationary, I am not giving up on the precious metals, but would favor silver and regulate the miners to the status of ‘just another play’ in the greater landscape that includes banking, global stocks, commodities, US stocks, etc.

Speaking of gold, I want to call your attention to a really well done article by Charlie Bilello…

What Happens When Gold is Oversold?

His theme is that the returns to follow after wipe outs like this one tend to be positive.  He advises calmly knowing the facts instead of listening to the crazies who can spin a yarn like nobody’s business.  Me being me however, I’d want to see a fundamental underpinning like rising yield curves and inflation expectations in the mix as well.

More to come, probably after ‘Big Jobs’ or on Sunday if I don’t feel there is any additional information I want to beat you over the head with in the meantime.  ;-)