NFTRH+; 2.5%

The 30yr US Treasury bond yield has ticked the 2.5% to 2.7% target zone this morning.

The big picture is exactly as we have been anticipating since the policy response and recovery out of last year’s market crash. I drew and marked up this picture for a reason. That reason was so that we would have the appropriate level of caution when 2020’s gore fest would turn into 2021’s party blow off. Market sentiment has gone from utterly terrified (as we noted at the time) to structurally over-bullish and speculative.

And there sits the yield, at 2.5%.

Given markets’ habit of pushing things to the limit I’d lean toward the party not yet being over. But as the  dust settles on the latest FOMC non-event we’ll keep the analysis tight and use markets’ (and individual stocks’) short-term daily chart parameters (EMA 20, SMA 50 and on to the SMA 200) as guides as to whether the rally is still on or morphing into yet another routine correction or perhaps something worse. I’ll trust you not to over (or under for that matter) react to any short-term analysis that comes about. Caution means caution, not panic.

The bottom line is that the Continuum has dinged the lower bound of the caution zone and the closer it gets to the limiter (monthly EMA 100, red dashed) the closer the risk of reversal for the reflation trades. I say “risk” of reversal because the other option is a more painful inflationary condition where the economy does not respond as hoped by the inflaters. That would be the stagflation scenario and could be indicated by a break through the limiter (something that has not happened in a sustained way throughout the indicator’s history.

As for the gold sector, regardless of whether or not it would take a final drop if broad markets drop, a reversal of the yield at or around the limiter would likely be a macro fundamental positive. The miners would likely go from nothing special (at best) in the current atmosphere to something special.