MINUTES OF FED MARCH MEETING PUSH THE DOLLAR HIGHER AND GOLD LOWER -- STOCKS REMAIN IN UPTREND -- RISING BOND YIELD AND FALLING PRICES SHOULD MOVE MONEY OUT OF BONDS AND INTO STOCKS
FED SEES LESS NEED FOR MORE STIMULUS... Minutes of the Fed's March meeting released this afternoon surprised the markets by suggesting that it saw less need for additional stimulus. That immediately pushed bond yields sharply higher. Chart 1 shows the 10-Year Treasury Note Yield ($TNX) jumping sharply which put it back above its 200-day average. If the Fed is going to let bond yields take their normal course, financials odds favor higher yields. That of course would push bond prices lower, and longer-dated Treasuries in particular. [Please see my earlier message on the weak price action in bond ETFs]. The Fed minutes also gave a big boost to the U.S. dollar. Chart 2 shows the U.S. Dollar Bullish Fund (UUP) bouncing sharply off of its 200-day moving average. The dollar bounce hit the gold market especially hard. Figure 3 shows the Gold Trust SPDR (GLD) falling the equivalent of $19. GLD met resistance at its 200-day average. Gold shares fell 3%.
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Chart 1
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Chart 2
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Chart 3
STOCKS SEE SOME MINOR SELLING... Stocks lost a little ground on the Fed minutes, but not much. Chart 4 shows the S&P 500 still in an uptrend. Its 14-day RSI line (above chart) is starting to flatten out near overbought territory which implies some loss of upside momentum. Its MACD lines (below market) are also flat. The first sign of a correction in the S&P 500, however, would be the breaking of initial support levels. The hourly bars in Chart 5 show the two closest support levels to be at 1391 and 1386. Although higher bond yields may cause some profit-taking in stocks, it also carries a bullish message for stocks. Rising bond yields mean falling bond prices. When that happens, investors may be forced to sell bonds and buy stocks.
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Chart 4
