Gold (GLD) and Bonds (TLT) Facing Oblivion
It’s fast becoming clear to the entire investment community that an end to the 30 year bull market in bonds is at hand (GLD).
We’ve been on this story for some time, calling it early (as we do, unfortunately, all too regularly), and explaining it as a function of a grand rotation into equities that we believe will shortly ballisticize equity markets the world over.
Here in the U.S. we believe the market will be particularly prone to the burgeoning liquidity overflow, leading to American outperformance over the rest of the industrialized world.
In just the last two months we’ve seen evidence that the process is already in play.
Have a look below at the iShares Trust Barclays 20+ Year Treasury Bond ETF (NYSE:TLT), a reasonable proxy of the U.S. long bond, which backed off considerably as the markets began their skyward projection in mid-November.
This chart is the bad news story of the week. Anyone holding TLT, or long term Treasuries, or mid-term Treasuries, or corporates of similar duration – or, indeed, any investment grade fixed income product that’s tied to interest rates – would be wise to review carefully the technical picture above and CASH OUT OF ALL SUCH POSITIONS FORTHWITH.
And we mean it!
Here are the technicals.
First, all but the longest term moving averages have rolled over and are now streaming lower (in red, at top). If and when they’re entirely unwound, the price of TLT will be considerably lower than today, and we’ll likely have a price cap on the stock in the vicinity of the current long term moving average (in yellow) between roughly 118 and 120.
We believe that rollover is inevitable, as price action has been streaming consistently lower since topping in late July at 132, and is now barley holding on to its last line of support at the long term moving average (in blue, on right). Any break below this level could bring the stock as low as 110, the former intermediate bottom, set nearly a year ago in March of 2012.
In addition, both RSI and MACD indicators are pointing toward continued downward pressure on TLT (in black). Since MACD’s dive below her waterline in early December confirmed the RSI plunge two weeks prior, we’ve been categorically bearish on the long bond.
GLD – Get Out and Stay Out
There is no reason for anyone today to be holding any of the above named securities. Consider yourself warned.
And while we’re at it, here’s another warning.
Gold miners have just ascended the gallows. They’re done. Toast. Through. If anyone is still holding out for a quick turnaround here, or is considering purchasing, we say think again.
Here’s the chart:
It’s the Market Vectors Gold Miners ETF (NYSE:GDX), and it’s a complete mess. In just four trading sessions we saw the group retreat by over 10% – and that was against a drop in the price of bullion of just 2.4% over the same four days.
The miners have nothing to hold on to at this point, technically. And bullion is not far behind.
Here’s the chart for bullion, the SPDR Gold Trust (NYSE:GLD):
Our understanding here is as it has been for over a year now. The miners are pacing the way lower for the precious metals, and not the reverse.
A look at the chart shows a particularly troubling development for those in love with the aureate metal. For while bullion has yet to drop in the manner of the diggers, it appears prepped to do so within weeks.
Look at the descending trend channel, in black, and the bunched moving averages at the far right side of the chart. We’ve circled the whole big mess in blue to illustrate to you that very shortly the upper trend line will cross below the entire set of moving averages, at which point the stock’s price will be locked below formidable resistance.
The only hope for bullion today is to ascend above all its moving averages (it sits today below them all) and the trend channel before the whole, unholy swirling downdraft encompassing it shackles it evermore into a hellish decline.
Here’s a blow-up of the above to illustrate the deal more clearly:
Gold’s freedom is found at GLD 165. Any move that falls short of that level will almost certainly doom the metal to the same fate as her miner brothers.
And play it smart.
Many happy returns,