The ratio of Banks to the broad market (daily chart) is a leading indicator to the reflationary aspects of the markets. In particular, the ratio should lead or go in alignment with long-term yields. On the daily chart view KBE/SPY (top) led the topping of the 30yr yield by over 3 months as it topped in February and the yield topped in June.
The ratio has been plucky lately and today (CPI relief day) it is trying to poke above the 200 day average. Meanwhile, the 30yr yield in the lower panel has the look of something that could end its consolidation. But if that happens it will have ended its correction at 2.85% rather than our downside target of 2.5%. It’s just something to consider as I do not want the NFTRH analysis to be taken as some sort of decree. Obviously, if rates were to bottom sooner than expected the ballgame’s rules would change (and probably not for the better for the precious metals) if banks bull and yields follow.
On the long-term (monthly) view it does not look like much is going on with the KBE/SPY ratio and that may well be the case. So let’s consider this a low priority update but also something worth keeping an eye on.
The QQQ/SPY ratio (daily) has also been rising lately and that is more in line with the current view of a disinflationary whiff for the macro markets as we’ve been tracking. Considering correlations with long-term yields, one of these ratios is off sides. The one at top implies a reflationary whiff while the one below a whiff of Goldilocks. Neither (reflation or Goldilocks) is by the way very good for the gold sector. That is why both of these conditions (reflation and Goldilocks) must be considered temporary for a stellar gold stock view to come about.
