Monday, March 5, 2012

Stocks, Treasuries, the Dollar, Gold and Commodities all down today

On some days our inter market relationships don't work but we can still get a sense where these markets might be going by looking more closely at the relationships and the charts.

The key is being able to identify which is the most consistent interrelationship and when we have a divergence in that particular relationship attempt to glean future market direction.

With stocks down, the long end of the Treasury yield curve sold off hard today.  That seldom happens and its clear to me the Treasury market is telling us something about stocks.

With the S&P 500 down .39% today, TLT (iShares Barclays 20+ Year Bond ETF) was down over twice as much (.79%).  Here's a weekly chart of TLT:

 (click for larger image)
The MACD indicator in the top panel continues to show accelerating deterioration in momentum and the price action is seriously weakening (pink dashed line).  We have some strong support at 115.0 but with deteriorating momentum I doubt we will hold the 115.0 level for any length of time.

Fundamentally, the market is spooked not so much about China as the media hyped all day but by concern about whether Credit Default Swaps will be triggered on Greek debt later this week.  The nervousness was manifest by the VIX (CBOE Volatility Index) edging up and the CBOE Equity Only Put/Call ratio jumping.  And yet, despite these concerns Treasuries were abandoned as a "safe haven" trade.

If we can get thru the concerns surrounding CDS this week this market will resume its uptrend shortly.