US 10-Year Yields breaking out, while precious metals roll over

Technical Strategy Video:

US 10-Year Yields breaking out, while precious metals roll over

Key Takeaways

  • SPX momentum and trend remain bearish and bounces likely prove short-lived into next week before weakening which might test December 2021 lows.
  • Value outperformance continues over Growth.  Breakouts in Energy and Financials back to new all-time highs should lead strength in both groups to persist awhile longer
  • US 10-Year Yields have exceeded former October peaks, which should lead to further upside in yields particularly on the front end of the curve, while 30-year has stabilized

While Thursday attempted some mild stabilization after Wednesday’s downside volatility, it’s insightful to examine how Equal-weighted broad-based indices like Value Line Geometric Avg (1700 stocks) fared instead of only looking at the QQQ or SPX.   As discussed in recent months, broad-based gauges like Value Line had flattened out starting last May, giving a very different picture than SPX.  While prices did hold where they needed to in early December, the bounce filled its December gap but has now broken back down under prior swing highs from 12/8/21.  This was a major reason for why technically I believe support has been violated, and has far more to do with broader averages, than merely SPX levels.  Additional January weakness likely.

US 10-Year Yields breaking out, while precious metals roll over
Source: Trading View

Yields remain pushing higher on the front end and belly of the curve, though have stalled out when eyeing the 30-year yield, with TLT prices holding prior lows and making their first reversal attempt back higher.  This has resulted in a flattening of the 10s/30s curve, which seen below remains part of a fairly vicious flattening cycle

Interestingly enough, but not surprisingly, the push into Value has accelerated in recent days, and Thursday brought about a breakout back to new all-time highs in Invesco’s Equal-weighted Financials and Equal-weighted Energy ETF’s (RYF and RYE). This is a positive for both over the next few days, technically, and along with the breakout in TNX, I suspect we can continue to see a bit more push into Value and see TNX continue up to 1.95-2.00% without much problem.  Below we see the 10’s/30’s yield curve which attempted just a brief steepening over the past week, but Thursday’s more severe push up in the front end of the curve resulted in a flattening.

Thus, TLT very well might hold and try to turn higher near-term, as the Back-end doesn’t respond as aggressively.  Overall I expect that 2’s/10’s can also begin to flatten out after recent steepening.

US 10-Year Yields breaking out, while precious metals roll over
Source:  Trading View

Metals and Mining have been showing great relative strength, but most of this is in Base metals, not Precious Metals   

This daily chart of XME shows the S&P Metals and mining ETF in very good technical shape, and on the verge of breaking out of a large eight-month base.  But yet at the same time, Gold and Silver have had a very difficult 19 months since peaking in August 2020.  So what gives?  

Unfortunately, most of the Miners have not been gold nor silver miners, but stocks tied to base metals like Aluminum and Copper.  The areas associated with Steel, Coal, and Base metals have done much better than the Precious metals over the last couple years.  Moreover, this trend doesn’t show imminent signs of reversing course given the breakout in TNX Thursday 1/6/22.   

As seen below, for those seeking Metals exposure, choosing the XME over the GDX might make sense at least from a technical perspective, favoring long exposure in companies tied to Aluminum, Steel, Coal, Zinc, Copper, vs. Gold and Silver.     XME looks to have stalled out temporarily after its second retest of $48 which held just recently in November.  Movement back above $48 would argue for chasing this move, expecting a rally to the low to mid- $50’s.

US 10-Year Yields breaking out, while precious metals roll over
Source:  Trading View

Precious Metals failure on higher yields calls for revisiting this trade 

My comments last month on Buying the Metals looks to be proving very short-lived indeed.  While Gold and Silver both bounced and several Mining stocks participated in December, January’s Rate spike is coinciding with a big rolling over in the precious metals which looks important and negative.

This was always more of an intermediate-term play, but I feel it’s important for the US Dollar to show more signs of rolling over along with Treasuries rallying not selling off before this trade has a better chance of working.  At present, I’m betting that Thursday’s decline likely does lead the Precious metals lower and it doesn’t look wise, technically speaking, to buy into this just yet.

The real key lies at mid-December lows for Gold and Silver.  Any break of these lows would be seen technically as a big negative, bringing about further deterioration which could accelerate given the breakdown.   Key levels to watch for SPDR Gold ETF (GLD 1.25% ) are 163.80, while for the Silver ETF (SLV) one should pay attention to 19.80.  Both are important to hold to have any near-term bullish technical view.

US 10-Year Yields breaking out, while precious metals roll over
Source: Trading View

Bitcoin’s weekly Cycle composite shows a Spring Low for 2022

Most Cryptocurrencies have followed Equities in breaking support in recent days.  While there remains strong institutional acceptance, near-term technical and cycles remain bearish, and suggest further weakness might unfold into this Spring before any meaningful low is at hand.

When reviewing important weekly cycles going back since 2009, we know that bear market years like 2011, 2014 and 2018 proved very difficult for Cryptocurrencies, with losses in excess of 80% in BTCUSD.  Going forward, using a cycle composite with the main cycles of importance which score highly in strength and Bartel score, we come up with a 90-week cycle  (88-92)  a 40-44 week cycle and a 30 week cycle.  Overlaying these periods in a composite shows results like the below chart.  After peaking out in late 2021, it indicates a tough road for early 2022 with a possibility of a low in Spring of 2022. Thus, April/May look like a better time to buy dips vs currently. For BTCUSD, key support is thought to lie short-term at $39.5k and then $29k being more serious, as this held from May through July 2021.

US 10-Year Yields breaking out, while precious metals roll over
Source: Foundation for the Study of Cycles, CycleFinder
Disclosures (show)

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