Equities v Bonds v Commodities v Dollar

Here is the 30 year treasury long term chart. Price has hit the top of the channel from which previous reversals occurred.

Underlying Source: Stockcharts / James Craig

Below we see the commodities to 30 year treasury bond ratio which is back to the level at which historically commodities have been bought versus bonds.

Source: Stockcharts / James Craig

Next we see that Wall Street strategists’ recommended allocation to bonds is at a 15 year high and to equities at a 15 year low. The steep drop in recommended stock allocation not only exceeds the 2008/9 panic low but also resembles a capitulation.

 Source: Sentimentrader/Bloomberg

Below are the global p/e ratios as at the end of June. Those in single digits are at secular bottom valuations.

Source: Megane Faber

Next, two charts courtsey of Tiho, which show that public opinion is at opposite extremes for silver and the US dollar, both at comparable levels to the 2008/9 panic lows.

Source: Short Side Of Long / Sentimentrader

And lastly, a chart showing there is internal strength to the recent up move in stocks, with cumulative advance/declines at a new high, that normally suggests new market highs ahead.

Source: Sentimentrader

Drawing all together, the bigger picture suggests that an enduring move should be at hand away from treasury bonds and the US dollar towards commodities and stocks (particularly European), in other words a major rally in pro-risk and out of safe havens.


20 thoughts on “Equities v Bonds v Commodities v Dollar

  1. Nice work, John. However, I have to point out that the advance-decline line is reflecting strength in bond-like stocks, rather than common stocks. When you eliminate non-operating-company stocks from the stats, the A-D Line is moving only in line with the NYSE Composite Index. In fact, the NYSE Composite itself contains only shares of real operating companies. There are 1867 stocks in the NYSE Composite Index while there are a total of 2816 stocks included in the adv/dec stats released by the NYSE. On a long term chart, the personality of the breadth statistics released by the exchange is entirely different from its historical personality, reflecting the addition of bond-like stocks. Bond-like stocks tend to rise much more often than real stocks during a quarter, then suddenly drop when they pay a dividend. This behavior is skewing the A-D Line to the positive side.

    1. I would add that the weekly chart of the NYSE Composite (NYA) is telling a very different story from that of the S&P or the AD line as described above. It is much more in line with the posture of various global indices

  2. I just want to clarify the above charts by saying that my view is for lower prices in Gold and Silver despite negative sentiment. I am not 100% sure of this view so I continue to buy Silver on quarterly basis as it corrects more and more. Nevertheless, I would prefer to see one more major collapse of price before a capitulation bottom is in. Consider the following:

    Q: Which asset has made the most new record highs since 2007 until present?

    A: Gold has. Record high after record high.

    Q: Has there been an asset that has not lost any major gains over the last decade?

    A: Yes, only one and it’s Gold, which is up 11 years in the row. Furthermore, Gold has barley lost any gains over a rolling 12 month performance period. This is amazingly rare.

    My point is: Gold is amazingly overbought and I am not talking about RSI on a daily chart here. The asset has produced amazing gains since 2007 and for over a decade. It needs a rest. Investors need to learn that assets don’t just go up, they can also go down. Gold hasn’t even corrected 20% yet on closing basis. A bear market is overdue.

    Nothing goes up in a straight line forever, not even a secular bull market. Corrections of 30%, 40% or even 50% are common in secular bull markets. The longer the correction goes on for and the deeper the sell off, the longer the secular bull market will last and the more powerful the final spike will be. Finally, my mentor once taught me an important rule for investing long term (not trading). He used to say:

    “If fundamentals for an asset are improving, why do you want prices to go higher? The only time we want prices to go higher is when we are ready to sell.”

    I hope Gold and Silver go lower, so we can all buy a lot more before the final spike. All major bull markets end in euphoria and mania, and this one will not be different. So buying at lower prices is a gift, not a curse!

    1. Gold has made a significant correction, but it’s by time rather than price – 9 months of sideways coiling – and that coiling should give way to a big move. Putting solar timings aside, I believe we now have two catalysts for a move up – the one is that food prices have taken off again and there is a close relation between the two shown here:

      which means gold is due a catch up. The second is that central banks around the world are currently cutting rates and diluting their currencies again. Lower rates and yields and an inflationary push by food is a great environment for gold.

      The oversold/overbearish readings provide the other push – so how come it’s not yet taken off? I think we just need to see more evidence of the deflationary threat subsiding – i.e. positive development in economic surprises, leading indicators and debt.

      1. Personally, I don’t think current correction in price and time is not enough. After 11 annual years, Gold could most probably correct further. As a matter of fact, we could crash lower in a panic if we break $1530.

        I own PMs and I’m not predicting this outcome. I’m just saying it is possible. If it does, I plan to buy a lot more PMs.

  3. At this point it’s getting weird that Mr. Tiho has to come in here, on every single post, and espouse his views that gold is “due for a correction”.

    We get it already. You’ve got an opinion. I’ve got an opinion. John has an opinion.


    The evidence is not in yet on gold, but an 11-month triangle consolidation is not exactly bearish stuff.

    So don’t get messianically attached to any specific credo.

    As they say in boxing:

    “stick and move baby.”

  4. Interesting daily hammer candles yesterday on pro-risk. Need to see follow through today though to make it count.

    Leading indicators this week came in at -1.1% Japan, -0.6% Spain and -1.2% Korea, i.e. still bad.

    Economic Surprises continue to improve though for both G10 and emerging markets.

    Global easing and stimulus continues with Korea and Brazil cutting rates this week.

    Euro debt is unclear – off the highs but not in an obvious downtrend.

    US earnings bad so far, but the more important ones start as of today.

    No position changes for me at the moment.

  5. There are some names that are way overdone on the equity side. While I like shorting both the SPY and TLT at this point (look at the $SPX/$TNX ratio – parabolic), some names like Wal-Mart, Kraft Foods, Verizon, Home Depot, etc are just loved and cannot do any wrong with stock “analyst”. Some of these big/mega-cap names are well overdone (10-year monthly charts tell the story) and are due for a major pullback. If this occurs, high beta names will surely follow.

  6. I have to say I agree with Tiho. Yes there is a triangle and it looks liek it wants to break to the upside IMHO but I have noticed a tendency in the past that when I take a view it usually goes the other way.

    Gold needs QE3 to move up IMHO but the US election makes this polictically tricky. I can therefore see QE3 in November after a deflationary “event” which leads to a widescale sell off ala 2008.

    We shall see, we are all agreed on the outcome, its the route that uncertain. Those sentiment charts are good but sometimes the expected happens!

    Good luck all and have a great weekend.

  7. Good debate here. Let me add one thing – it is quite useful when one stakes out a position to let others know where their “line in the sand” is, i.e., at what price level does his/her thesis fail. I realize it’s not always easy to say at a particular price point “I get out”, but, regardless, it’s much more interesting and useful to see where that level is in the person’s mind.

    1. Me personally, I don’t tend to have such levels. I don’t use stops. I trade the medium term, using long term anchors and looking at the short term for clues. If the short term clues change and cast doubt on the medium term then I would amend my overall position accordingly. Clearly the break of important technical levels can trigger big moves up or down but they can also be fake outs. So I’m looking at them, and sometimes acting on them, but it’s unlikely I’d do an all-out. I tend to sell into strength or buy into weakness, rather than take losses on moves going so far against me. I guess attacking rather than defending. Well, there are many ways to make money from the market, and I’ve found what works for me.

    2. To clarify, I would not stubbornly stick with a losing position. But I am constantly reviewing the overall situation – a price level would be one, but so would a process of lower lows and lower highs or vice versa, improving or deteriorating fundamentals for the asset, longer term cycles and so on. So I adjust my overall aggregate position accordingly. Patience is a big part of it. I have occasionally nicked off a losing position that I’m no longer sure about when taking profits on other trades. But over the last few years I’ve generally been on the right side of the markets, in that I haven’t had to face closing a big losing position that I’ve realised wasn’t going to come good. In this instance, if gold were to break down out of its 9m consolidation range, and say fall heavily from there, it would swiftly hit extreme oversold and overbearish and I’d attack for the bounce. I’d keep reviewing the overall pic to judge whether to add to positions or hold and look elsewhere to make profits. In the past we’ve seen assets shake out weak hands before making their ending parabolic. So a big drop in gold needn’t mean a new bear. On the other hand, it might, but within that there’ll still be opportunities short or long to change the overall aggregate trade.

  8. New lows in the Euro, yet Silver refuses to break $26 so far. Constant new lows in the Euro since September 2011, when Silver first fell to $26. Back than Euro was at $1.32 and today Euro is at $1.22 yet Silver is still at $26. Can’t argue with the tape…

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