The yield on ten-year Treasury Notes followed through above 2.75, indicating a fresh primary advance, with a target of 3.50 percent*. Breakout above 3.00 percent would confirm. Completion of a 13-week Twiggs Momentum trough above zero (recovery above say 30%) would strengthen the signal. Reversal below the rising trendline is unlikely, but would warn of another test of 2.50.
* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50
Dollar Index
Rising interest rates would strengthen the dollar. The Dollar Index rallied off support at 79 on the monthly chart, suggesting a test of 84. Breach of the rising trendline, however, still warns of trend weakness, and 13-week Twiggs Momentum respect of the zero line (from below) would strengthen the signal.
* Target calculation: 79 – ( 84 – 79 ) = 74 or 84 + ( 84 – 79 ) = 89
Gold
Rising interest rates and a stronger dollar weaken gold. Spot gold broke support at $1250/ounce, signaling a primary down-trend. A 63-day Twiggs Momentum peak below zero strengthens the signal. Follow-through below the next support level, the June low of $1200, would confirm. Recovery above $1260 is unlikely, but would warn of a bear trap.
* Target calculation: 1250 – ( 1350 – 1250 ) = 1150
Crude Oil
Nymex crude is undergoing a strong correction. 13-Week Twiggs Momentum crossing to below zero warns of reversal to a primary down-trend; a peak below the zero line would strengthen the signal. Expect strong support at $85/$86 per barrel. Respect of support would mean that Nymex remains in a primary (albeit weak) up-trend. Diverging Brent crude reflects both a strengthening European recovery and continued supply threats in the Middle East.
Commodity Prices
Copper prices, bellwether for the global economy, respected resistance at $7400/$7500 per tonne and are heading for another test of the 2011 lows at $6800/tonne. Downward breakout would signal a primary down-trend, as would completion of a 13-week Twiggs Momentum peak below zero. Recovery above the descending trendline would be a bullish sign for the global economy, while breach of support at $6800 would be bearish.
China is a primary driver of commodity prices and a strengthening Shanghai Composite Index has slowed the fall in commodity prices. Dow Jones-UBS Commodity Index broke primary support at 124, but is consolidating in a narrow range below the former support level. Recovery above 124 would be a bullish sign, while follow-through below 122 would indicate a decline to 114*. Completion of a 13-week Twiggs Momentum peak below zero would also suggest a continuing down-trend.
* Target calculation: 124 – ( 134 – 124 ) = 114
G’Day Colin
I enjoy you comments tremendously
I’m a contrary trader (CFD providers luv me!)
I use a “buy on the way down” strategy on blue chip stocks
Not recommended for the feint hearted
Currently I am Long in NCM (2232 shares) and am looking for a bounce in Gold
My get out and make a profit price is $9.82 (Current price $8.72)
Given your prognosis on Gold…do you see NCM reaching $9.83…this year?
John
John,
I try to avoid analyzing individual stocks. The win rate on your “buy on the way down” strategy must be low. How do you make money from it?
Hi,
I have a question that I have been wondering about for a while, it’s probably due to ignorance but here goes…
Rising yields strengthen the dollar and a rising dollar weakens gold, correct? With rising inflation governments are forced to raise interest rates to tame inflation. But rising inflation causes gold prices to rise.
So here lies a paradox that gold is moving both directions due to inflation and yields. My question is how is this resolved? Where is the balance point? Am I missing something?
Thanks,
Kieran
Good question.
Rising inflation will put downward pressure on the dollar and upward pressure on gold.
Eventually the central bank will react to rising inflation by raising rates.
Rising rates lift the dollar and lower inflation, putting downward pressure on gold.
Hi Colin,
Thanks for the clarification. So a follow up question to this is…Bonds are at elevated levels recently (and low yields), won’t the decline in bond prices lead to an increase in yields and a corresponding jump in interest rates and a decline in gold?
1. This also seem paradoxical as bonds will be declining as people loose faith in the US, why would this lead to an increase in the Dollar as people are loosing faith in America?
2. If people are loosing faith in bonds they will have to move their money somewhere else, where will they move it?
3. If they move it to stocks then they are just moving to another part of an economy that they have no faith in, why would they do this?
4. If instead they move it to gold then the price of gold would rise while yields (interest rates) are also rising?
I must be missing something as it doesn’t seem to fit together!
Love your blog, it has thought me a lot over the years!
Thanks and regards,
Kieran
Another good question.
Declining bond prices do suggest higher interest rates, but are not indicative of people losing faith in the US. Bond prices may rise or fall for several reasons. The two most important are: (1) rising investment in stocks; and (2) monetary expansion by the Fed. The former indicates increasing confidence in the economy, while the latter flags the opposite. Monetary expansion would also raise inflation fears which may undermine the Dollar. A booming stock market with rising interest rates, on the other hand, would likely see a stronger Dollar.
Hi Colin,
I think your Momentum Oscillator is a very useful tool.
But I am confused. You paint a negative picture on Gold and Silver, but are they not showing positive divergence?
David
Careful. Momentum will also show divergence, though not as severe, during a consolidation. Draw a trendline on Twiggs Momentum over 2 to 3 years and it should tell you the trend direction.