PALL - Palladium Metal ETF (holds physical metal) GLD - Gold ETF (holds physical metal) SPY - S&P 500 Benchmark Index JJT - Tin ETF JJC - Copper ETF FXF - Swiss Franc PPLT - Platinum ETF (holds physical metal) GDXJ - Junior Gold Miner ETF SLV - Silver ETF (holds physical metal) PAAS - Pan American Silver Corp - Silver miner
We last looked at the metals trade about a month ago in this posting:
And it’s nice to note that the trend call was a good one. Especially the pick of Tin and metals with an industrial double use like Silver and Palladium as an alternative to gold.
We have an ‘early economic recovery’ thesis going on mixed with a “bugger the dollar” trade. Early recovery has materials and cyclical industrials rise (so things like DE Deer, CAT Caterpillar, etc.). In this case, we’re looking in particular at the metals. Pretty much up across the board.
Also of note: The Swiss Franc is just running smoothly up as the US Dollar tanks.
Earlier today we had CNBC reporting (via Rick Santelli, who is ‘colorful’ and knows his stuff) that there was a fairly bad bond auction today. This is the third ‘tepid at best’ in a couple of weeks. Folks are not buying bonds anymore like they were. So what does the bond trade look like?
TLT - Long duration bond fund GLD - Gold ETF SPY - S&P 500 benchmark TBT - "Short Sell" bonds ETF UUP - Dollar UP ETF UDN - Dollar DOWN ETF FXE - Euro ETF
We’ve got “failure to advance” with the latest peak lower than the prior peak. Prices have crossed THROUGH the moving average stack. (Which have started a ‘weave’). RSI, that had been doing a “50-80-50-80” roll (as things running up tend to do on this time scale) has punched through 50. MACD is “Red on top” headed to below the zero line. DMI is “Red on top”, time to be out. And finally TBT is showing a turn upward.
It’s time to be out of US Bonds and starting a bond short watch / trade.
( I first ‘called the top’ on bonds a little over a month back in this posting:
Kind of nice to have had that call confirmed too. ;-)
While some central banks (like Japan) are buying treasuries to try and support the dollar / weaken their currency, they are being offset by others. In this case, while Japan bought 55 $Billion China was dumping 48 $Billion (IIRC the exact numbers right from the CNBC ticker). China is trying to prevent their currency from appreciating too, but also wants things of value…
As private investors look at their 1% and 2% dividend, but especially foreign investors who see a larger currency loss, and ask “why hold this?”, the run for the exits will pick up speed. As that happens, the “bond short” will start to win. Here’s that chart. Same tickers as above, but with TLT and TBT swapped.
We had one nice “swing trade” a while ago in TBT, and I correctly said to exit it when it hit the moving average stack. Now we’ve got it back at the moving average stack, but things are different this time. ;-) We no longer have a falling trend. We’ve “gone flat” with “failure to advance” to the downside. DMI is now “blue on top” and MACD is “Blue on top” with a zero crossing to the upside in progress. Slow Stochastic has already called a ‘trade in’ for the last few days of run. It will likely show another trade soon, but more importantly, as we transition from a ‘bottom roller’ swing trade into a “just short bonds” trend trade, it will tend to either “peg to the top” or do a shallow roll between 50 and 80.
The trend trade will be confirmed once prices have crossed the moving average stack to the top, the stack as re-ordered to be 25 day on top and 75 day on the bottom, and we’ve had prices come back to the SMA stack from the topside and fail to punch through. So we ‘swing trade’ with Slow Stochastic until that point, then we jump on the trend as it confirms for a fairly long run.
How soon? Who knows. It depends on a bunch of central bankers, some hedge funds, major bond trading houses, and a few dozen gorilla sized insurance companies… But when they start to move, the chart will show it.
And yes, I’m not in cash much right now. Mostly on the trades shown here and my “core holdings” (BRKA / BRKB, oil trusts, some Mall REITS, some retail, some energy companies, some high dividend pipeline / CNG shippers, etc.)
FWIW, the charts of EWW Mexico and EWC Canada are also beating the S&P 500 as our dollar tanks and their currency does not. EWA Australia is also doing well as their currency dances with US Dollar Parity…
EWC - Canada ETF GLD - Gold ETF SPY - S&P 500 Benchmark ETF FXC - Canadian Dollar EWW - Mexico ETF FXM - Mexican Peso EWA - Australia ETF FXA - Australian Dollar
There’s a lot to choose from here…
One word of caution: The Third Friday of each month is options expiration. Markets often select a new direction just after options expiration. So watch this Friday and next Monday closely for any indication of a reversal of these trends.
I don’t expect such a reversal, as these trends are driven more the The Fed than anything else; and The Fed is telegraphing (megaphoning?) the intent to By God Get Inflation and Bugger The Dollar. There was a Fed member on CNBC basically saying it flat out… So until unemployment drops to under 8%, and maybe even under 6%, this set of behaviours ought to remain in place… and that will be a very long time.
TIP is the ticker for Treasury Inflation Protected Securitys Fund. These are bonds with a ‘kicker’ based on the rate of inflation. As inflation is recognized in the official statistics, the rate of return of the bond is adjusted. Market prices reflect that expected adjustment.
Here is a chart of them:
As you can see, they are presently rising as TLT rolls over. They are not rising as nicely as Gold (GLD) or the Swiss Franc (FXF); but at that point we’re really talking about choosing the optimum trade more than a good investment. Both gold and foreign currencies will have much higher “beta” than a TIP bond; so they will both rise more when rising AND fall more when falling. The “risk” is greater in that they are more volatile than TIPs.
Notice the Euro (FXE) that is presently rising very fast compared to the TIP line. But notice also that it is rising from a big drop about a half year back… So it is outperforming at present, but still has to dig it’s way out of the hole it dug when the PIGS were in the news. (Portugal, Italy / Ireland, Greece, Spain). That’s a good example of Beta biting both ways.
The big ‘takeaway’ for bonds is that the only bond I’d ever own as an investment is a TIPs type bond. (I’ll trade the others for more “beta” trades, though). For folks not in the US Dollar as their home currency, you can get these in other currencies too. The fund “WIP” (World Inflation Protected) is one such fund. You can see how it’s line is similar to the Euro line (it does not protect from currency fluctuations relative to each other, so the dollar rise / fall shows up in a comparison using US Dollars as the reference currency as in this chart). So measured in Euros or other non-US currency, it would show the same kind of ‘steady up’ that TIPs show when measured in dollars (and you would see the TIP line rise, then fall, as the US Dollar did a rise / fall).
Using TIP and WIP to avoid inflation risk is well worth it. And judicious selection between them can let you hedge out currency risk as well.
Update 2 – Picking an Entry Point
This is a static 10 day hourly chart for PALL the Paladium physical metal ETF. Also on the chart are gold (GLD), silver (SLV) and the Euro (FXE). The live chart will be just below it. The purpose of this chart is to show how, at the time you take a position, you are by definition a “day trader” at the entry. Choosing that entry point can be very helpful. For example, on this chart, we see that PALL had a nice entry on Tuesday last. Slow Stochastic “hit 20” followed shortly by MACD and DMI both going to “Blue on top”.
(If you don’t like watching charts every hour [or every 15 minutes for a 15 minute chart, for faster response] you can just put in place a ‘buy if touched’ order above the market price and ratchet it down every so often. Eventually when the dip happens, you get ‘bought in’ on the reversal. Like a “stop loss” for exiting, you could think of it as a “start gain” ;-)
To see this chart clearly, click on it for a larger version without the compression artifacts / blur…
Today is Friday. Notice how last Tuesday was a nice entry? I’d expect next Tuesday might be a nice one too… (Though what I expect is never as important as what the charts say… “Expecting at the market” is something you can not stop doing, but it is something you can ignore when the indicators say something else…)
The live chart:
So at this point I’m watching for the ‘nice entry dip’ to round out my positions. Only when we have the next rise fail to advance is the trend over. So until you have a ‘failure to advance’, “The trend is your friend” and you “buy the dips”.
(Though with that said, this trend has run quite a ways, so we might easily have a a reversal “soon”. But until The Fed stops buggering the dollar, I doubt it…)
Oh, what the heck. A 15 minute chart.
I usually don’t use a 15 minute interval chart, but sometimes they are fun to look at. This is “rabid day trader” country. But since I talked a bit about the daily market here’s a 15 minute chart to look at:
Yeah, really jumpy and schitzo… Day trades are like that…