BOND PRICES ARE UP AGAINST CHART RESISTANCE -- AND MAY BE SUBJECT TO PROFIT-TAKING -- RISING OIL PRICE MIGHT ALSO WEAKEN BOND PRICES -- SO COULD A STRONGER COPPER MARKET -- TODAY'S YIELD BOUNCE MIGHT BE CAUSING SOME PROFIT-TAKING IN GOLD

TREASURY BOND ETFS ARE UP AGAINST CHART RESISTANCE... Last Thursday's message suggested that an overbought Treasury bond market was looking vulnerable to some profit-taking. That's still the case. The weekly bars in Chart 1 show the 7-10 Year Treasury Bond IShares (IEF) just below potential overhead price resistance formed in mid-2017. That would seem to be a logical spot for bond traders to consider taking some profits. Chart 2 shows the 20+ Year Treasury Bond iShares (TLT) near their price highs reached during the second half of 2017. That might also be enough to stall the price advance that started during the fourth quarter as investors bought bonds while stocks were selling off. Last week's message also suggested that one of the intermarket factors that could contribute to some bond selling is the recent uptick in commodity prices. That's especially true of the recent upturn in economically-sensitive base metals and energy.

Chart 1

Chart 2

RISING OIL PRICES COULD WEIGH ON BOND PRICES... The black bars in Chart 3 show the United States Oil Fund (USO) bottoming at the end of December before rallying to a three-month high by the end of February. The price of oil has climbed 28% since its Christmas Eve low. The chart also shows that the peak in the 20+ Year Treasury Bond iShares (down green arrow) at the start of January coincided with the jump in the price of oil (up black arrow). That's because the inflationary impact of higher energy prices is bad for bond prices. The longer maturity bonds in the TLT are more sensitive to an uptick in inflation. And those green bars are starting to weaken. Crude isn't the only commodity that's turned higher. So have base metals, copper in particular.

Chart 3

THE PRICE OF COPPER HAS ALSO TURNED UP... Base metals like copper are also off to a strong start this year. Chart 4 shows the Bloomberg Copper ETN (JJC) climbing to the highest level since last July after completing a "double bottom" reversal between early September and early January (brown circles). The JJC has also cleared its 200-day moving average. Strong base metal prices are often viewed as a sign of a stronger global economy. That may be tied to the recent rally in Chinese stocks (upper box). After falling with Chinese stocks for most of 2018, both are now rising together. China is the world's biggest buyer of copper and most commodities. If rising base metal prices (with help from a stronger Chinese stock market) are hinting at a stronger global economy, that could put some upward pressure on bond yields and start to weaken bond prices.

Chart 4

RISING BOND YIELDS MAY CAUSE SELLING IN GOLD... My message from last Wednesday suggested that falling bond yields starting last October helped boost the price of gold. [So did the fourth quarter drop in stock prices]. Gold, however, has continued to rally during the first two months of 2019 along with stocks. Which suggested that low bond yields were contributing to the recent rally in gold. Since gold is a non-interest-bearing asset, it does better when competing bond yields are falling (or at least not rising). Chart 5 shows the rising price of gold (brown bars) coinciding with a falling 10-Year Treasury yield (green bars). The last green bar, however, shows the TNX yield climbing today. At the same time, gold prices are experiencing some profit-taking. Since weak bond yields have supported gold, it seems logical to suspect that any uptick in yields could cause some profit-taking in gold. That probably wouldn't be enough to reverse the uptrend in gold which is also impacted by the direction of the dollar and the stock market.

Chart 5