NFTRH; ‘Reflation Trade’ Indicators & Vehicles, Status

The current macro theme is an ongoing inflationary reflation that will one day meet its end and morph into another liquidation along the Continuum (caution about that is currently targeted at around 2.5%). For a review of what I mean by “inflationary reflation”  you can check out the NFTRH 606 excerpt located here.

The current micro theme is a normal pullback in the reflationary stuff as rising long-term Treasury yields back off. This is all coming from just below the 2% caution level on the 30yr yield.

Here is a daily chart view of the yield’s pullback. It is sitting on the EMA 20 right now and can drop to fill the gap and test the SMA 50 while still maintaining the post-March uptrend and thus, one important indicator of the ongoing inflationary reflation.

The Silver/Gold ratio is another that would track the inflation/reflation and as shown in yesterday’s update, it has been weak lately, but is intact. Weakness in the SGR would go well with the picture above and a consolidating reflation trade. A breakdown in the SGR along with a breakdown in the chart above would be a big warning.

Inflation expectations are still trending up. As long as that is the case the end of the reflation trades is not yet indicated.

Until such breakdowns happen in the charts above we will stay with the ‘ongoing reflation’ theme (with all due caution along the way in a high risk, policy-stoked market) and an eventual target on the 30yr yield of around 2.5%. Meanwhile, the short-term easing in the reflation trades continues. Let’s look at a few of the vehicles that benefit from reflation.

The Materials sector is doing exactly as we’d expect. It is pulling back for a test of the SMA 50 and is thus far still fully on it’s post-March uptrend.

The Banks are similar as would be expected. But boy that gap down there at 42 looks fill-able. That would also test the SMA 50.

Industrial Metals are consolidating sideways to meet up with the SMA 50, overbought condition having been relieved. Thus far, it’s all normal.

Bottom Line

We are according to plan. 2% on the 30yr yield implied a cool down level. That is what is happening on the short-term. If it becomes something more it will be time to back away from the already stale punch bowl.

If the indicators and markets above hold the normal daily chart trends then we’d look for a resumption of the reflation trades and an eventual target on the Continuum of around 2.5%.