SLOWER ECONOMY IN FOURTH QUARTER HELPS BONDS BUT HURTS STOCKS -- DOLLAR IS MIXED AS GOLD HOLDS STEADY
BOND YIELDS FALL AS PRICES RISE... Today's report that growth in the U.S. economy slowed to 3.1% in the fourth quarter is having a predictable effect on bonds and stocks today. It's helping bonds and hurting stocks. Chart 1 shows the Ten year T-note yield dropping to 4.14%. T-note prices are jumping by 20/32. That's because prices rise when yields fall. Chart 2 shows the 7-10 year T bond Fund (IEF) rising today in a mirror image of Chart 1. The bond ETF has also broken a three-month down trendline. Weak economic news usually favors bonds over stocks. Although the dollar is mixed today, the GDP news could put some pressure on the greenback. The Euro remains in oversold territory as are gold prices.
Chart 1
Chart 2
EURO IN SUPPORT AND OVERSOLD ... The next chart is the same one I showed last Friday to make the point that the Euro had declined to a potential support area and was in oversold territory. The support level is the green horizontal line which is drawn over the early 2004 peak (see circle). Prices are in the process of testing that line (see green arrow). At the same time, the 9-day RSI line is in oversold territory at 30. The arrows show that the Euro has rallied each time the RSI has dipped that low over the last year. [The second RSI line uses a 14-day time span. You can see that the 14-day RSI line never reached oversold territory over the last year. That means that it's not sensitive enough. The way to fix that is to switch to a shorter time span -- like 9 days. That's also why I've been using a 9-day RSI line in a lot of my recent charts].
Chart 3
GOLD HAS BEEN HOLDING STEADY... Despite some volatility this week, the price of gold hasn't changed much since I showed this chart last Friday. The Gold ETF (GLD) has broken a two-month down trendline, but hasn't been able to move higher. Its 9-day RSI line is showing some improvement as well. As is usually the case, the fate of gold rests with the direction of the Euro and the dollar. If economic news continues to push rates lower, that could hurt the dollar and help gold.
Chart 4
