Currency/Commodity Markets It seems you can’t swing a dead pundit these days without hitting someone who is intensely negative on the U.S. dollar. Oddly enough we find that thought somewhat comforting (not the dead pundit part, of course, but the one-sided dollar view).
The ratio of the Nasdaq to copper prices bottomed in 1992 and again in 1995. It has returned to a similar level this year. The point is that THE lows for this ratio were made at the two most significant bottoms for the dollar in recent history. So... our dollar positive view isn’t good from DXY 85 to 88 but is more a reflection of our expectation that the dollar is going to resolve up into the 100- 105 range.
Yesterday was only one day so we can scarcely call it a trend but it was the first time in awhile that the markets really felt ‘right’ to us. Energy prices were nicely lower, metals prices were certainly lower, the U.S. dollar was broadly higher, and the U.S. equity markets pushed upwards in the face of what could well have been very bearish news.
When Intel is rising commodity prices tend to be weaker and when commodity prices are weaker the U.S. dollar is moving higher which, in turn, is reflected in a weaker Cdn dollar. The end result is an inverse relationship between Intel and the CAD.
The decline in unleaded gasoline futures prices yesterday was quite amazing. The front month futures contract declined from around 2.17 to just under 2.00... in one trading session.
Our argument has been that rising gasoline prices have been helping to chase short-term U.S. interest rates higher so it should also take weaker gasoline prices to help confirm the peak in U.S. short-term yields. Again... this was merely ‘one day’ but it sure made a few our charts look somewhat better.
Short-Term Views On the one side you have Bill Gross and PIMCO now positive on the U.S. bond market and on the other- or so it would seem- you have a host of traders trying to short the long end of the bond market at an obvious technical chart point.
We show the U.S. 30-year T-Bond futures from 1987 and from the current time frame.
The TBond futures have rallied up into the declining channel top and are currently struggling with the 200-day e.m.a. line. This is a very nice place technically-writing to sell bonds. We included the 1987 chart to show that a second chart point to consider being a seller would be just after the 50-day e.m.a. crosses up through the 200-day e.m.a. In other words, if the bond bulls manage to push the TBonds futures through the channel top and above the 200-day e.m.a. then if one is inclined to want to be negative on bond prices it might make sense to let the moving averages cross first.
Now... on quite a few occasions in the past we have shown the SPX and an energy-related chart to make the case that the equity markets tend to be weaker once energy prices start to decline but once energy prices get sufficiently weak the SPX starts to rise. We mention this because the decline in unleaded gasoline futures yesterday compressed what might have taken days or weeks of price losses into one trading day. Gasoline futures prices took a serious run at the 200-day e.m.a line and that the last time this happened- October, 2005- the SPX responded with considerable vigor.
We were pleased by the way the markets responded yesterday but we also realize that by itself it wasn’t quite enough to really turn the trend. The Nasdaq is still struggling within its declining channel and the crude oil/TBonds ratio is still just a bit too close to the support line.
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