Japanification on the way. The US10Y will drop to 0 % soonThe US10Y will drop to 0 % soon. Otherwise the world economy will crash due to the amount of debt. The central banks will continue to print untill the system breaks down.
Treasuries
The market will drop even moreThis chart shows the relationship between the 03 M Y on American treasury bonds and S&P 500. It shows a clear relationship during the last two crises and also shows that the downturn has just started.
US 10Yr Yield Triple bottom has been breached and this is an indicator of economy enter into the downhill.
Governments across the globe are already ready or has started pumping money into their economy to support the impact of the virus.
Strong resistance line of the triple bottom formed by US 10Yr Yield has been breached, mainly fueled by economy greatest enemy - fear.
United States is expecting the arrival of the virus and will this prompt further flee into treasuries?
Let me know your thoughts below.
US 30 YR AT KEY LEVELLooking at 30 year UST yields key levels are at 2.2% and 2.4% on the weekly chart.
Break and close above 2.4% could indicate we have bottomed, but close below 2.2% and we're probably heading lower, meaning the rally in yields (sell-off in bonds) was a retracement of the heavy buying buying before the rally in treasuries continues.
The 2020 GDX OUTLOOK>>YIELDS|STOCKS|FED Policy& GOLD>>(Part 2/4)Short Analysis on GDX/Gold in 3 bullet points; Series on Commodities and the 2020 outlook - 21st of December 19'
Before I get into the analysis, wishing you all Happy holidays! Here's the simpler version of the chart:
1. Few key takeaways: Despite that the current resistance at ~31 is holding , the breakout in GDX is eminent . The question is of the timing . From part 1/4 analysis on yields(Ref #5) it seems that yields are looking somewhat bullish. Of course, this is based on the assumption that "Not QE" will continue and eventually QE-4 will be announced . Nevertheless, this means that equities will continue to be bullish, even in sectors such as materials (Ref #6). If we get another series of rate cuts, GDX could breakout as early as Q2 of 2020. For further discussion on QE and monetary policy, visit part (1/4) on Treasury yields:
2. Recently there has been somewhat of a small bounce in PMI's . This was expected as the global monetary policy stance of CB's took a dovish turn in 2019, and the easing environment affects the real economy with a lag . Taking this into consideration, $GOLD may continue the horizontal path that it is currently on. This bounce in the macro data may be very dependent on the outcome of the trade negotiations , which hopefully we will find more about in January.
3. Not expecting gold to make new highs in the first half of 2020 . As the election cycle unfolds, there should be more volatility depending on the election circumstances. It's still very early, but it doesn't look good for the Democrats, in which case a breakout in both GDX and GOLD may be postponed . It's all labelled on the chart.
To sum up, based on more accommodating monetary policy, the bottom line in GDX should hold above 27$. The horizontal range (27-31.25) should sustain before we get a breakout triggered by either the election cycle or potential economic shocks . This is a perfect iron condor trade setup . Materials as a sector has been very under-weighted and hasn't performed well, compared to the cyclicals . As the global economic slowdown continues, it seems that there isn't any downside in holding gold as a stock market hedge . Either way, balance sheet expansion favors all assets, especially substitutes for the dollar- gold.
Tried my best to keep it short and simple, this it for GDX and GOLD.
-Step_ahead_ofthemarket-
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References & Disclosure:
1. FED rates Super-cycle 1980's-
2. Dollar/Yuan breakdown, trade progress and tariffs:
3. Previous Gold chart:
4. XAUXAG, Gold aginst Silver ratio:
5. Treasuries and QE:
6. XLB Sector, US materials:
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US 10-Year Yields Continue to RiseAs global financial markets continue to grind higher and reach new highs, it appears that yields on the US 10-Year Treasury are doing the same.
Yields broke through their previous yearly high of 1.899% (Green Resistance Line), settling at 1.943% (as of Nov 10th), and are trying to make a move higher.
On a technical basis, yields seem to be forming an "Ascending Triangle" pattern, supported by a rising RSI and MACD, indicating that this recent uptrend has some legs to stand on.
This recent bullish action comes as investors are beginning to feel a little bit more optimistic about the global environment as 2019 comes to a close.
If 1.899% can hold as a steady short term support for yields, and its momentum continues, the next stop could be its Weekly Resistance Line of 2.042% (Orange Line).
Bond H&S updateupdating the previous chart to look at how this is behaving. Keeps retesting neckline, yet it keeps getting rejected. If broken, this will rally a bit, but I still expect this to head south significantly.
TLT LongTLT has pulled back to a very key trend line with additonal supports coming in below. On the hourly chart, we have positive divergence on TLT meaning we should see upside soon in the short term. Given the postures of the markets and how treasuries act as a flight to safety asset, it is reasonable to assume they will go up in price as stocks fall.
For this trade, I advise picking up TMF (x3 leverage) with a stop anywhere from 28.00 to 26.60. I also recommend scaling into the position with 2 or 3 batches comprising your total allocation that you are willing to invest.
Gap always get filledI expect us to revisit support at the green line or at least 1.5 soon, perhaps this week or within the next two weeks. Gaps always get filled!
S&P 500 - A Bearish Outlook Heading Into 2020Here is my thought process behind why I have a bearish outlook heading into 2020 - please note that this is the second time that I have ever published analysis and this is just me synthesizing a bunch of ideas. I'm going to start off with the lighter ideas before moving on to the heavier ideas...
1) We are in the late stage of the economic cycle... this is the longest expansion of the US economy since records began. Common sense dictates that we will enter a recession soon.
2) Keeping this in mind, let's look at the state of politics around the world. We have protests and riots in HK (recently a protestor was shot for the first time), we have Brexit which has both Germany and the UK on the brink of recession. The US and China trade war has not improved at all and is constantly seeing tit-for-tats. Finally, literally the other day the US was given the go-ahead by the WTO for $7.5 billion in tariffs on the EU in response to their 15-year long row over the subsidizing of the rival aircraft companies Boeing and Airbus.
3) In recent surveys, over half of economists in the US believe that a recession will hit the US in 2020. The market has also seen the yield curve invert, providing a stark warning (although this usually takes at least 12 months to materialize, this is a bad indicator).
4) There is a ridiculous bearish RSI divergence on the charts, with Fibonacci Time Zones pointing towards significant price action at the start or end of 2020. I believe this is because this cycle was pumped and overrated, running on the crack cocaine of financial markets: Quantitative Easing.
5) Recessions usually occur when there is a sharp fall in liquidity in the cash markets (referring to bank deposits and not trade execution liquidity). In recent times we have seen a bipartisan deal passed through in the US which mandated the US Treasury to "aggressively build up" cash reserves. After lowering the debt ceiling the Treasury plans on borrowing an additional $433 billion during this quarter (about $275 billion more than it had previously estimated) which is roughly ten times (1,000%) more than what the Treasury borrowed last quarter ($40 billion). This would cause global dollar liquidity to dry up fast (foreign nations and banks use excess deposits and reserves to purchase these meaning dollars flow out of the economy into the Treasury).
6) Continuing on from the last point, not only do we have dollar liquidity vanishing in the global economy but we have negative dollar swap spread (those lending USD via currency swaps want higher premiums). This is only getting deeper and deeper. Interestingly, the Bank of International Settlements found that cross-currency swap spreads act as a more accurate measure of struggle in the financial markets than the VIX. This shortage of dollars (highlighted by the premium being charged to lend dollars in swaps) comes at a time when the global economy is already weakening thus is making financial markets more fragile (turning to IMF reports on muted inflation and weaker final demand for goods and services) also referring to previous points
Seeing and analyzing all these factors, the future doesn't look too bright. Disappointing economic data continues to plague our minds. As the Fed continues to cut interest rates they are only giving debt-laden companies one more sigh of relief which will only knock the inevitable crash further down the road when neither corporations nor the government can cope with it (they're throwing away all their ammunition and shooting themselves before the battle has even started). The drop to come will be harder and more brutal than 2008 because asset prices are currently inflated at incomprehensible levels due to quantitative easing as well as the Fed having little headroom to cut rates further. You could only imagine what is to come in countries with much less head-room for monetary policy than the US... What's next? Helicopter money!?
Disclosure: I hold shares in: XSPS IGLT O IBTM
USA 10YR: 1.00 by Mid 2020; Lower is PossibleContrary to what most people believe, 10 year yields have very little to do with the DXY, but rather acts as an outlook/sentiment with respect to the global economy. Of course there are many other things in play, however, in this impending recession that will be the major driving force for the 10 year.
Moreover, plummeting yields from most other nations will lead the US yields artificially lower.
I expect by February or March 2020 we could see a full 1.00. There is potential it could drop further but I am holding firm on a 1.00 prediction at this time.
Eventually, yields will eventually burst upwards and begin to rise which will likely happen in the last (late) quarter of 2020. From this point, precious metals will completely decouple from yields.
- zSplit
10 Year T Note: Triple Bottom. Major long term Buy Opportunity.The 10 year has rebounded off the major 1M Support this month, making a statement with last week's strong 1W candle. This marked a Triple Top formation on the 1M scale (since 2012) and the trend shift becomes obvious. 1D is trading near overbought territory (RSI = 70.811) pushing the 1W towards neutrality (RSI = 42.781, ADX = 58.406, Highs/Lows = 0.0000), detaching it from its previous bearish levels.
We are expecting a major cyclical bullish move in the next 2+ years towards at least 32.00. Shorter term investors should look towards the inner Channel Up (dashed lines) for pivotal sell/ buy entries.
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Is it Time to Short Bonds and Long Stocks? With TLT at nosebleed heights the question obviously becomes, is it time to switch into equities yet?
As you can see TLT (red line) reaches fever pitch levels almost always at excellent entry points into equities, going back all the way to the GFC this has held true.
TLT for what it's worth is also extremely extended, driven to these heights on trade fears, slowing growth and a litany of over issues including the abundance of negative yielding debt, leading to increased interest in US treasuries.
But as traders we all know that nothing can go in one direction forever, what goes up must come down.
Stocks for their part look to be in 'hurry up and wait' mode, the September FOMC meeting will likely be the catalyst for the next move (both for stocks and bonds). If the fed provides the desired outlook (or direct rate cuts) that equities want then stocks will be the place to be, bonds too will benefit from lower rates (premium wise that is), but the liquidity will undoubtedly support higher equities.
Until the FOMC meeting, best to be cautious, but i for one would be careful about staying in bonds for too long.
US Treasuries Performance - 1 YRIf negative rates are set to accelerate, it's important to look at the corresponding treas. performance over the past year.
$TLT $IEF $LQD $US10Y US 10-Year Yields Continue to FallYields on the US-10 Year Treasury continue to head lower, as they approach a multi-year support of 1.426% (blue), a level not seen since July 2016.
"Risk Off" continues to be in play.
The Bond Market - Historical Levels
We are currently witnessing levels is the Bond Market that have never been seen before. Again today, the US02Y-US10Y have inverted multiple times. The US01M-US03Y have now also inverted. We currently live in a time where debt is out of control and unfortunately there is no end in sight.
History shows, within 6-18 months after a US02Y-US10Y inversion, the US economy falls into a recession. The question now becomes, does history repeat itself once again?
We all know that the US Stock Market has been on what many would call a parabolic uptrend. Is the US Stock Market at fair value? Or does it at some point return to fair value? That remains to be unknown at this time as all we can do is allow the future to play out.
I've currently been working on a script (Pictured Above), that helps me visualize the Bond Market and Yield Curve in a different way. The moves again today have been very interesting.
Best wishes,
OpptionsOnly
FOMC Madness: volatility risesPowell rocked the markets yesterday:
“Let me be clear: What I said was it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that. When you think about rate-cutting cycles, they go on for a long time and the committee’s not seeing that. Not seeing us in that place. You would do that if you saw real economic weakness and you thought that the federal funds rate needed to be cut a lot. That’s not what we’re seeing.”
But is a 25 basis point cut meaningful in the long run? Markets wanted further easing from the Fed yesterday. Bond traders aren’t as confident a “mid-cycle adjustment” in rates will be enough to keep the economy afloat.
Volatility:
We saw a -2SD plunge in response. Volatility is back. Hopefully it continues higher from here and lasts at least a few days.
VIX reached 16 handle. This ain't over boys. (Normalizing back to the decade average at 17% is still almost 3 weeks late at this point. ) The great thing about trading options strategies is we can hedge this market madness.
USD/DXY:
This morning has the dollar higher and has got everyone talking. You'd think lower rates are bad for the USD. With more rate cuts on the way, it seems like an unexpected USD move. Perhaps markets priced in too many cuts and are now backtracking.
Gold:
This alternative asset class hasn't been immune to the vol. A big move in /GC overnight down 2%. Gold bugs coming back in recent hours.
Bonds: Treasury yields took another plunge today.
The bond yield curve is inverted at the 10y-3mo spread.
The 2- to 10-year spread, one of the most closely watched indicators of impending recessions, shrank to the narrowest since March. It is not inverted at the moment, but it ain't bullish when it finally does.
Other data:
Weekly jobless claims higher than expected 215k vs 214k expected
This month, the regional surveys point to further weakening in U.S. manufacturing.
US July ISM manufacturing index 51.2 vs 52.0 expected.
Black swans still lurking everywhere;
Chinese forces building on the HK border.
North Korea says it tested crucial new rocket launch system and fired missiles for second time in a week.
We continue to watch for opportunities in volatility selling on the main indexes.
$IEF Bond Rally FadingDespite the market chatter of rate cuts by the Fed at the end of July, it seems that one area of the market that is not paying much attention are US 10-Year Treasuries ($IEF as a proxy).
After posting an "Evening Star" pattern on July 3rd, US Treasuries have been selling off since. As can be seen in the attached chart, the RSI has been showing negative divergence in relation to recent price rises, indicating that investor sentiment is fading, despite prices marching to record highs. Furthermore, the price is fighting hard to stay within the FR100 at $110.40, indicating that it could fall out of this area any day now.
Going forward, it appears that the rally in US 10-Year Treasuries is fading, and caution investors to take heed in this space
ES1! AB=CD WEEKLYCURRENT LEG SUPPORT A STRONG MOVE DOWN 2700-2500 RANGE
CURRENT DOUBLE TOP
CURRENT OSCILLATION TURNING POINT
WITH A LOT OF HANDS HEAVY LONG SUPPORTED BY CHINA TRADE MEDIA PUMP ES COULD VERY WELL SMACK DOWN INVESTORS 3RD QTR
3000 IS STILL A C>D TARGET
CURRENT MOVEMENT IS B>C
A>B HAS BEEN SATISFIED TWICE WHICH MEANS A DOUBLE TOP
TLT is another Dunk!Buy line and sell line. Play this until a week before next fed meet up. Rates will be cut. If first cut is big I dump if not I hold and sell just before next cut.
10 year T Note: New long term bull cycle emerging?TNX has been trading within a 1M Channel Down since 2000 up until January 2018 when it broke the pattern upwards. The mini uptrend found Resistance on the MA200 and has been declining for the past 7 months. We are currently on the most support tests of all, as it has touched the 2000 Channel's Lower High trend line and will test it as a Support for the first time. If that provides a bounce then we may be at the very beginning of a new very long term bull cycle. A Golden Cross formation should come as confirmation.
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