10-YEAR TREASURY YIELD SURGES BACK ABOVE 1.9% -- DOLLAR GETS HIT AS EURO SURGES TO 11-MONTH HIGH -- GOLD FAILS AT 1700 AS GLD MOVES SHARPLY LOWER -- GOLD AND SILVER MINERS ETFS BREAK DOWN -- METALS & MINING SPDR FAILS TO HOLD BREAKOUT AND UNDERPERFORMS
10-YEAR TREASURY YIELD SURGES BACK ABOVE 1.9%... Link for todays video. Treasury yields surged and treasury bonds fell after the European Central Bank (ECB) reported that EU banks repaid more of their ECB loans (LTRO) than was expected. This positive news pushed money into riskier assets such as the Euro, and weighed on safe havens, such as the Dollar and treasury bonds. Chart 1 shows the 10-year Treasury Yield ($TNX) breaking above flag resistance with a big move above 1.9% today. This also puts $TNX above the August-October highs, which means the bigger breakout is still in play. Strength in treasury yields is positive for stocks because these two are positively correlated. Chart 2 shows the 20+ Year T-Bond ETF (TLT) breaking support with a sharp decline. This signals a continuation of the bigger downtrend and reinforces resistance at 121.
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Chart 1
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Chart 2
DOLLAR GETS HIT AS EURO SURGES TO 11-MONTH HIGH... The US Dollar Fund (UUP) is under pressure in early trading on Friday. This is mostly due to strength in the Euro, which accounts for around 57% of the US Dollar Fund and the US Dollar Index ($USD). The Japanese Yen accounts for around 13% and the British Pounds weighs in around 12%. Note that the Yen ETF (FXY) is down around 15% from its September high. This plunge is the main reason the US Dollar Fund has yet to break support in the 21.60 area. Chart 3 shows UUP forming a continuation head-and-shoulders pattern since September. The ETF hit resistance around 22.05 at least three times since late November. This resistance level marks the high of the right shoulder. A move below the December low would break neckline support and signal a continuation of the July-September decline. A successful test of support and break above the January high would negate this bearish continuation pattern. Chart 4 shows the Euro Currency Trust (FXE) breaking flag support to signal a continuation of the mid January surge.
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Chart 3
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Chart 4
GOLD FAILS AT 1700 AS GLD MOVES SHARPLY LOWER... Gold bounced in mid January, but resistance at 1700 cut this bounce short as bullion fell back this week. Chart 5 shows Spot Gold ($GOLD) peaking in September and working its way lower the last four months. The pink trend lines mark a falling channel with resistance at 1700. Notice that gold turned back at the 1700 level three times in the last two months. Despite a support zone around 1650 from broken resistance and the December lows, gold has yet to forge an upside breakout that would reverse the four month downtrend. A trend in motion stays in motion. In other words, expect lower prices as long as this downtrend is value. Chart 6 shows the Gold SPDR (GLD) hitting resistance in the 164-165 area and turning down this week. The channel extension and August lows mark next support in the 154-155 area.
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Chart 5
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Chart 6
GOLD AND SILVER MINERS ETFS BREAK DOWN... A little weakness in gold was more than the Gold Miners ETF (GDX) could handle. Chart 7 shows GDX broking below its December lows with a sharp decline this week. The trend has been down since the October support break. Note that the Gold Miners Bullish Percent Index ($BPGDM) also broke support in October. Both have been trending steadily lower since these breaks. With a new low in GDX, chartists can lower key resistance to 46. A move above this level would break the mid January highs and exceed the October trend line. Barring such a breakout, this weeks support break signals a continuation of this downtrend with the next support zone in the 40-41 area. Chart 8 shows the Silver Miners ETF (SIL) breaking channel support with a decline the last four days. The PPO also turned lower and broke its signal line.
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Chart 7
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Chart 8
METALS & MINING SPDR FAILS TO HOLD BREAKOUT AND UNDERPERFORMS... Stocks extended their runs the last three days, but several industry group ETFs within the materials sector did not participated. I noted the Gold Miners ETF and Silver Miners ETF above. We can also add the Coal Vectors ETF (KOL) and the Copper Miners ETF (COPX) because they both show relative weakness in 2013. I highlighted the Metals & Mining SPDR (XME) and the Steel ETF (SLX) as both broke flag/wedge resistance with surges on Tuesday. XME failed to hold its breakout and SLX is challenging its breakout with a decline the last three days. Chart 9 shows XME closing below 45 on Thursday and moving below its mid January low on Friday. The price relative broke the October trend line and this ETF is showing relative weakness in 2013. Chart 10 shows SLX breaking out on Tuesday, but failing to follow through and immediately moving lower. Most industry group ETFs within the materials sector are showing relative weakness in 2013. The Agribusiness ETF (MOO) is the exception because it hit a 52-week high today.
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Chart 9
