TLT doing something odd – stocks sideways drift slight rise

This following chart is just odd. I’ve looked at thousands of charts over the decades and you get to know what’s “the usual” and what is not. This one has several “odd bits” about it. One, clearly, is that the $US strength is distorting relationships when seen in ROW (Rest Of World) context. The ‘overseas’ things in this chart (EEM Emerging Markets, metals now largely bought by China as they own manufacturing, oil – priced in dollars but sold into world demand, etc.) are dropping largely in similar trends, much of which is really the $US rising. More on that in a moment. For now, here’s the chart:

2 Year chart of US Treasury Bonds vs a selection of tickers.

2 Year chart of US Treasury Bonds vs a selection of tickers.

Remember you can click on it to get a much larger version.

OK, the main ticker is TLT a US Treasury Bonds fund. It’s rising in a nice steady-if-slow way through most of the 2 years on this graph. Then in Jan-Feb 2015 it has a bump. now it has returned to the trend line (back to the SMA Simple Moving Average stack). Odd. Bonds don’t usually jump that much unless something big is going on. I know I was busy and away from the news flow then (ending one job, immersed in teaching Brazilian high school kids English, job hunt and planning a future, etc.) but for the life of me it isn’t clear what happened then. Was it The Fed doing something? The ISIS thing? The POTUS doing a FUBAR? I just wasn’t watching… But there it is in the chart.

Now the indicators (such as MACD and DMI are saying “time to be out” with “red on top” and MACD clearly below the zero line. Yet both are inflecting upward. That can mean a clear buying opportunity IFF you know why the drop from the top happened. And I don’t. Sigh.

Heck, there was even some news about Euroland being on the edge of failure of the currency about then. Perhaps it was a flood of bank assets out of Euros and into $US assets.

So over the last year and a half a huge load of money has moved into US Treasuries (likely from ‘overseas’ as they get the T Bond yield plus the currency move) and now a bubble and drop. Did some Arab oil guy suck out a load of cash? Has some particular other currency stopped the drop relative to the dollar? I don’t know. But it’s odd. The best I can do is look at the chart and notice that USO Oil Fund took a spike-and-hump about that same moment. Oil has been in a perpetual drop for a long time, and here it looks like a lot of short-oil trades were taken off. Perhaps taken off as a pairs trade? Short oil, long bonds? Both trades being taken off at the same time? Gold has a bit of a rise going into that bottom, so perhaps some ‘short oil long gold’ was happening toward the end as they saw the bonds rising from cash flow in? Hard to say, but my guess would be that a Very Large Whale (or 2 or 4 or…) was making a major play in oil and moved out of it. “Oil Bottoming” was in some of the financial news as a question. Now oil is back into a drop, so this could be the “dead cat bounce” at the end of the long decline. Time to watch oil for a ‘bottom weave’ and start to rise (though I think it will likely just lay on / near this point for months to years as the structural increase in supply bites).

JJC Copper looks a bit ‘bottomy’ too. Stopped the decline. A bit of a rise (not quite a DCB shape though). In non-$US terms it likely is a bounce off a bottom and would look like that usual DC bounce shape. I do wish I knew of a similar site to BigCharts denominated in Euros or UK Pounds. It would help at times like this.

For the other lines, not much spectacular to note. US stocks continue a tepid sideways behaviour, but with a bit of rise recently as folks think we’re going to take off again and do fine, thank you all, while the Euro heads toward $US parity. I don’t think so… I’d be willing to ‘trade the ripples’ but the up trend is just too weak to hop on and ride. Also, as soon as the EU get their act together, that Euro weakness can end. Similarly, there’s a whole continent of folks who can not afford that Disney vacation in Florida this year as the Euro is not cutting it. Nor will buying $US goods look very attractive. Other than Apple (where folks will pay near any price for the latest i-gadget) just what does the US sell that will be compelling? So I’m not seeing how a strong dollar helps our corn, beef, pork, wheat, etc. sales nor our manufactures.

EZU and EEM both continue to drop (that’s EU and Emerging Markets) in $US terms. (Again that non-$US chart would help sort out is this a currency artifact or an actual drop in local price terms… but one really does need to guard against changing rubber rulers too often… so measuring in one $US rubber ruler is likely OK after all).

So for me, it looks like the world is having some kind of transition. US oil production forcing oil down and the $US up. The traders hopped on that trend, but may have hopped off at the start of the year. Strong dollar biting the typical US products, but Apple pulling the QQQQ up anyway ( it’s about 20% of the Nasdaq …) and commodities likely near a bottom. Not a “risk on” trade yet, but not a “risk off” trade either.

So time for deeper sector analysis, individual stock picking, and watch much more closely for reversals in trends in things like metals and commodities. Things will likely also be squirrely going into the 2016 election cycle, so short cycles, not multi-year trends, likely to dominate.

All in all, not seeing a reason to commit to any long term strategy just yet. Mostly just seeing a reason to look inside the NASDAQ for particular bits of interest while starting the bottom fishing work on commodities. And watching the EU for any signs it will fail to implode and actually start some kind of economic recovery with Euro strength… but not holding my breath. IFF the EU risk comes off, a swap into EZU and related stocks (from a US POV) could make a great trade as the Euro rises and their stocks grow. Worth watching.

Now that I’ve got a better set of news feeds for international news I’ll be better able to follow the developments. We’ll see. CNBC is doing the “European Close” at the moment and commodities are down, so not showing much follow through on any change to a rise. Talking heads nattering about when central bank rates might rise (as they have been for months). When (if?) that happens stocks will take a hit. Perhaps the 1/2 year of nattering about it is why stocks have been ‘sort of flat’ for the last year-ish.

To me, it looks like we have an overall conflict between the financial view of the economy and the real production view. The financial view is dominated by monetary policy points of view. What is the interest rate and how ‘easy’ is money. The reality view doesn’t give a damn how low interest rates are when you don’t have a job and can’t qualify for a mortgage. Government talking heads are sure that they have ‘nailed it’ with pushing interest rates to zero (or below…) and now the economy ought to take off. The rest of us are staring stagflation in the face and noticing we don’t have a whole lot of money left while we still have a goodly quantity of month. It doesn’t matter if you are a Spaniard with 40% unemployment in some groups, or a USA black male with similar prospects, or even an “overqualified” white male professional with no income. At that point, interest rates just don’t make a damn bit of difference. Now, add in so much regulatory burden that any reasonable business manager is not able to “move” and change things that need changing in any reasonable way, and you have built a structurally stable system with structural failure inherent. The world does not stand still and you must move with it, or perish.

So folks “at the top” are doing “the usual” moving levers in their financial kabuki dance, while the rest of us are bored of the show and would really like to see something of real impact change. But it isn’t. So ‘for a while’ some paper assets bounce up, and down, based on financial dances, but where’s the real change in the real economy? Just not seeing it. It’s not bad, but it’s not good either. It is just sort of global ‘hanging on’ waiting for something to happen and hoping for better times.
“But hope is not a strategy. -E.M.Smith”

So what to do? For me, it’s continued cautious with only short term trades (buy the dips, sell the pops) and sector rotations as things get hot, or not. We’ve avoided a global economic collapse (due to the stupidity of the Democrats in pushing the CRA, the Financial Whiz Kids in finding ways to third party those junk loans globally, and the Republicans in their agreeing to it all just so long as the protections of Glass-Steagall and other regulatory protections were removed) but not yet figured out how to lighten the regulatory death grip on the throat of industry so it can “move”. Socialisms around the globe saw this as an opportunity for more “3rd Way” intervention and the USA went down that road too; but it fails longer term. (Those who are ‘friends of government’ tend to win, though, so love to push that ‘solution’ at the expense of the rest of us.) The USA has started to pull back from that path, but the Obama administration continues to ‘speak it into being’ with Executive Orders and agency Regulations. We’re in a race condition with 2016. And that will be a major shift for America, one way or the other. I can’t see making long term trend investments in that context.

In short: EU land is a mess, and likely to get worse. The UK is trying to decide to decouple from that mess (and face their own, smaller, mess). The USA is heavily conflicted and headed for a wall in 2016, where we either head down the Euro-Socialist path for the next generation or pull back from the edge. The Emerging Markets depend on selling into those markets, so are not liking what they see. Russia and the OPEC nations are heavily stressed on US oil production, and Russia in particular is starting to lash out. (The Arab world was largely funded by oil money and as that gets tight, we will see lots of turmoil -as we have- with more to come). Overall, things are looking “not so good”. The only bright lights I see are a rising India and China about ready to shift to internally driven growth. IFF they can do that quickly, they can become the “engine of growth” globally.

But I’m not seeing that in the charts just yet…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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4 Responses to TLT doing something odd – stocks sideways drift slight rise

  1. Another Ian says:

    E.M.

    Not quite stocks but in that area with a nice diagram

    http://www.smalldeadanimals.com/2015/03/we-dont-need-no-503.html

  2. p.g.sharrow says:

    @EMSmith; The only thing of interest that I recall over the last few weeks is the big banks have stopped paying interest on “parked funds” and now charge a service “fee” on such funds, reverse interest. Could that cause the “bump”? pg

  3. R. Shearer says:

    TLT seems to be correlated with the inverse of oil price over the past 4 or 5 years. I guess both respond accordingly with global economic weakness.

  4. Terry Jay says:

    Not quite on point to your remarks, but Bloomberg commercials have a lot of Buy Gold, Buy Silver, Own your own Oil Well. All are down. Oil was holding in the $50 range and dropped now to $44. I paid as little as $2.28 for diesel a few weeks back, today it was $2.85, but regular gasoline was also $2.85. When was the last time that happened? Some credit over supply, or weak demand, or strength in the US$, and some point to lack of capacity in the storage. Pick one, but the combined Force may prevail. As you noted the US$ is up, but the CDN$ is down to around $.80 US, so not just EU.

    Net of everything, including Lois Rukeyser’s elves, the US market should have modest gains, as should the US$.

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