Yield
It doesn't look that fun to close below the purple line (DVY)High Yield Equity (DVY) broke below the since-2009 purple line today.
Gold Intraday TechnicalsGold has pulled back slightly, but still up almost 15 percent since 2016. Traders don't believe the current rally as they look hopeful of more central bank quantitative easing, which is exactly why gold has had its run this year; and it is why I have been saying fundamentals have been strengthening for gold for roughly 16 months.
After gold volatility hit multi-year highs, it is beginning to moderate a bit. I expect it to remain elevated:
Technically, gold downside may remain limited with minor trend and price support at $1,205 and dynamic support at the 72-4H EMA nearing $1,198. Deeper support levels are seen at $1,190 and $1,177.
Volume has tapered off since the Feb. 11 high, but positive bars still remain on top. Near-term resistance can be seen at $1,214, while stronger resistance is $1,220. If gold can retake these levels, price action would challenge the recent downtrend from the recent high. At that point, bulls can look toward $1,240.
What has been beneficial is that gold has been able to work off its highly overbought level while still remaining about key support.
This Friday, traders are anticipating the US preliminary GDP print. Consensus is at a nauseating .4 percent, following Q4 .7 percent that is likely to be revised lower. Even if the prelim data meets consensus, it would be over two percent lower than the Atlanta Fed's GDPNow model.
Not only is it ironic that the Federal Reserve's first rate high in seven years was in a corporate profits recession and sub-one percent growth, but it also could have been done going into a recession.
Way to go, Janet!
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HYG Leading SPY Lower?Junk bonds are typically just that - junk. But, the iShares High Yield Corporate has been one of those crowded trades that just do not die.
After witnessing the immaculate short squeeze from 1,864, the SPX staged an impressive rebound. But as I mentioned earlier today (on my InvestFeed - link below), the SPY is looking weak, and the ADX, which measures trend strength, is beginning to fall.
This is interesting because HYG tends to flow with the SPX (and SPY). As equities had a sharp correction so does high-yield The opposite is also true, and junk bonds rallied along side equities. SPY also acts more "violently" when prices diverge greatly.
According to ETF Daily News, roughly $10.7 billion was injected into U.S. equity ETFs last month, while $8.3 billion of inflows were seen in U.S. corporate bond ETFs - the largest monthly inflow recorded. HYG took in just over $5.5 billion.
This is important because today's trader shows the epitome of herd behavior: all cramming into a few trade ideas. So, when that idea doesn't material, traders flee and the response is not exactly orderly.
Price action is on a few minor support levels, but there is bearish EMA, RSI and DMI momentum. ADX looks to be moving upwards supporting negative price action.
If the SPY breaks down lower (I'm expecting mid-160k NFP tomorrow), this could spell trouble for HYG.
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The Case for USA Electric Utilities, even with Rising USA RatesRunning Alpha Capital Markets observes that higher rates are not always a headwind, as the not too distant record shows that the electric utilities group can outperform and offer a margin of safety.
During the last period of higher rates, from mid 2004 to mid-2006, the FOMC hiked rates 16 times, and despite these incremental actions, electric utilities actually outperformed the broad USA equity market indices by a fairly wide margin.
The electrics don't start to significantly under-perform until the Fed funds rate passes the yield of the average electric utility stock; and we will be no where near there even after a number of measured hikes.
Absolute returns on electric utilities are likely to stay rich, regardless of what interest rates do over the next market cycle.
Looking at the average electric utility investor, who are the buy and hold type of market actor, we still have good electric utility yields out there relative to what the Treasuries offer, and on top of that, the electric utilities have attractive balance sheets with good dividend growth and compelling absolute total returns.
MACRO VIEW: TNX IS ON VERGE OF BREAKDOWN WITH OILThe 10-Year Treasury Note Yield is on the verge of breakdown due to the recent downtrend in oil and consequent lowered inflation expectations.
Despite the anticipated FED rate hike, the Yield can actually go in opposite direction (the famous puzzle outlined by Greenspan, the former FED chairman)
The breakdown in the Yield will be confirmed on quarterly basis, if it trades below 2.17%, which is the lower 1st standard deviation from quarterly (66-day) mean.
10-Year US TReasury yield going lower, target at 0.70%The yield on the US TNote 10-Year remains in a long term downtrend channel, looking to complete it's down wave (3) of V towards 0.70%. A break above 2.20% would invalidate this trade and a break above 3.04% would invalidate the whole bearish pattern.
10-Year US Treasury yield downside continuation10-Year US Treasury yield remains in a long term downtrend channel, in the process of completing downwave (3) of V near the bottom of the channel at around 0.70%. Key resistance that if broken would invalidate this bearish scenario is the 3.04% level.
One year of divergence between stock markets and bond marketsThis is a similar chart to that published by Technician (see related idea below) that shows a clear divergence between stock markets and bond markets. I realize after making this chart that I had identified several bearish signals in bond markets at the start of the year, and I thought that we would thereby see a stock market correction in 2014. Stocks are the only asset class that has been subject to a sort of risk-off trade this year, and one might suggest that certain factors like corporate buybacks explain the divergence we've seen between the SPX and the HYG/TLT ratio.
Why Treasury Yields Have Further To FallDespite the powerful rally over the last several weeks that brought the US equity markets back to their all-time highs, treasury yields are up only slightly and are well below mid-September levels. Meanwhile, as Gavekal Capital notes, speculators are still carrying a hefty short position in 10-year treasury futures and options contracts, implying that yields have further to fall yet.
Speculators are currently short about 160,000 contracts. Over the last several years, significant lows in yields have not been achieved until speculators became net long about 100,000 contracts, implying a 260,000 long contract delta that would need to be filled to achieve a low in yields.
Simply put, if history is a guide we are going to have to observe a massive change in positioning before yields make a low.
