April 03 – Yield Gone Wild

See below for supporting charts.

Yields continue to push higher amid a renewed appetite for risky stocks and a general uplift in the confidence of the economy. The 3 month and 10 year yield differential continue to expand after it un-inverted and is currently sitting at around 2.43 vs 2.51 respectively. This is helping to ease investor’s fears and part of the reason for the bullish strength being shown over the last few days.

In my opinion, the recent increase in yields does not represent a V-pattern reversal. The bullish sentiment in the market recently has been fueled based on positive Chinese manufacturing data and positive trade deal rumors. On the flip side, negative macro-economic data that confirms a slowdown in global growth and potentially weaker corporate profits have been brushed off without much effort. Not to mention the once again expensive multiples being priced into the market at the current levels, I wouldn’t be surprised if there was a 5%-7% correction to bring the market back to the lower end of its wild range.

This momentum in yields has kept a lid on any bullish Gold momentum, however Gold has been finding very strong support between the $1280-$1290 areas. I don’t see a high probability of Gold going on a prolonged sell off given the current uncertain economic backdrop. We’ve been getting conflicting economic data regarding the potential growth of the world economic powers, coupled with major central banks projecting lower growth across the board. On the technical side, Gold looks to be in the process of completing a descending triangle pattern and could potentially breakout to the upside.

The US dollar index continues to sell off after hitting the $12275 resistance for the third time, proving that the area is a critical zone to watch. I believe if it tests it again and fail, the US Dollar index will start selling off into the sub $12100 area.

Gold Miners traded flat for the day after heavy selling over the last couple trading sessions. As I mentioned in my published trade ideas on TradingView, I’m still bullish on the miners currently, I believe their price could directly benefit from a couple of correlated factors:

  1. Market selloff  
  2. Gold rally
  3. Lower yields and US Dollar
$VDX – Vanguard Gold Miners ETF
US Dollar Index

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