BOND MARKET PRICES IN AN ECONOMIC DIP -- YIELD CURVE FLATTENS, BUT REMAINS STEEP -- TLT LEADS HIGHER WITH MOVE TO 2008 HIGHS -- 30-YEAR TREASURY YIELD HAS FURTHER ROOM TO FALL -- GOLD GOES PARABOLIC WITH STEEP MOVE

BOND MARKET PRICES IN AN ECONOMIC DIP... Link for todays video. Double dip seems to be the economic topic djour. A CNN poll on August 10th noted that 25% of economists expect a double dip. This number was up from 15% just three months ago. Double dip refers to another economic dip into recession. There is one small problem. Proof of another recession will not happen until well after the fact. GDP is reported quarterly and often revised. Moreover, there are three GDP reports. The advance report comes out a month after the quarter ends and is usually subject to revision. The second report is issued two months after the quarter and is less subject to revision. The third report comes out three months after the quarter and is usually the final. With stocks and bonds leading the economy, waiting for proof of recession could be costly.

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Chart 1

Treasury bonds also have a pretty important vote when it comes to the US economy. In particular, Treasury yields decline when the economic outlook dims. Chart 1 shows the 10-year Treasury Yield ($TNX) dipping below its 2008 low last week. The outlook was pretty dim back in December 2008. The stock market went on to new lows in early 2009 and did not bottom until early March 2009. The fact that this key yield is back near its 2008 lows suggests that the prospects for a double dip are greater than 50%. Also notice that the 10-year Treasury Yield broke support from a massive triangle. Broken support around 24 (2.4%) turns into the first resistance level to watch. Chart 2 shows that the 20-year trend is down and this triangle break signals a continuation of this downtrend.

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Chart 2

YIELD CURVE FLATTENS, BUT REMAINS STEEP... The yield curve stretches from 13-week T-Bills at the short end to 30-year Treasury Bonds at the long end. StockCharts.com users can view the different yields with the Dynamic Yield Curve. Short-term yields are near zero (0%). Yields rise as the curve extends with the 5-yr Treasury Yield ($FVX) near .9%, the 10-year Treasury Yield ($TNX) around 2.07% and the 30-year Treasury Yield ($TYX) near 3.4%. The black line marks the current yield curve. The teal lines mark the trail over the last 50 days. Long-term rates moved down because the trail extends well above the black line.

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Chart 3

TLT LEADS HIGHER WITH MOVE TO 2008 HIGHS... Treasury bonds moved sharply higher over the last three weeks with the biggest move coming at the long end of the curve. The 7-10 year Bond ETF (IEF) was up 5.55% over the last 15 days, but the 20+ year Bond ETF (TLT) was up 13.68%. TLT, which represents longer dated Treasuries was up far more than IEF, which represents the middle, or belly, of the curve. Chart 4 shows TLT hitting its 2008 highs last week and stalling today. The advance over the last four weeks looks parabolic, but we have yet to see a reversal. Watch CCI for the first signals. A move below the dotted green trendline would signal a loss in upside momentum. Chart 5 shows IEF for reference.

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Chart 4

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Chart 5

30-YEAR TREASURY YIELD HAS FURTHER ROOM TO FALL ... Even though the 20+ year Bond ETF reached its 2008 high, the 30-year Treasury Yield ($TYX) did not reach its 2008 low and has further room to fall. Chart 6 shows the 30-year Treasury Yield ($TYX) in a long-term downtrend. While the 10-year Treasury Yield dipped below its 2008 low last week, the 30-year Treasury Yield has yet to reach this low. If indeed the economy is headed for a double dip or extended malaise, one would expect a move below the 2008 low, just like the 10-year Treasury Yield. Such a move would imply even further gains for long-term Treasuries.

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Chart 6

GOLD STARTS GOING PARABOLIC WITH STEEP MOVE... The latest advance in the Gold SPDR (GLD) is starting to go parabolic, which means the advance has become exceptionally steep. There are a few ways to measure a parabolic advance. First, a visual assessment will show an acceleration higher that is virtually straight up. Second, chartists can use indicators such as the Slope or Rate-of-Change. The Slope measures the rise over run for a linear regression over a specific timeframe. Chart 7 shows GLD with a Raff Regression Channel extending back to July 1st. The centerline is a linear regression, which is the line of best fit for closes since July 1st. The indicator window shows the 35-period Slope because there have been 35 trading days since July 1st. I chose July 1st because this is when the most recent advance started. The 35-day Slope moved above .80 last week and hit .89 today.

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Chart 7

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Chart 8

Chart 8 shows a six year line chart for some long-term perspective on the current move. The 35-day Slope is at its highest value in over six years. In fact, this is the highest value in over 20 years. This means one would have to go back to 1979-1980 to find a comparable move. The second indicator window shows the 35-day Rate-of-Change. This is the sharpest advance in percentage terms since May 2006. GLD went into a seven month consolidation after this advance. While I am not prepared to turn bearish on gold right now, chartists should be aware of the parabolic nature of the current move. This means risk of a sharp pullback or consolidation is above average in the coming weeks. Also keep in mind that there are virtually NO bullion bears out there. This trade is certainly getting crowded.