The Stock Market May Be Rattled by the Coronavirus, But Commodities and Bond Yields Have Battles of Their Own

• Bond Yields are Just Above Support
• Commodities are at Support

The stock market was roughed up by the coronavirus earlier in the week, but, under the surface, another battle has been going on -- the one between inflation and deflation, that is, as both yields and commodity prices have run up against key support levels. That's a dispute that should concern most investors. It certainly concerns us at Pring Turner Capital and in my monthly newsletter, the Intermarket Review, as decisions are evolved as to whether to position accounts in an inflationary or deflationary direction.

Bond Yields are Just Above Support

Take the 5-year yield, for instance. Chart 1 shows that the trend is still negative, because it is below its 12-month MA and the long-term KST in the lower window is bearish. However, it is also resting on a 6-year up trend line, where it's possible that a reversal could take place.

Chart 1

Chart 2 shows how critical the near-term situation is, as the yield is also resting right on its 2018-2020 up trend line. Since the 9-day RSI is oversold at a time when the yield has reached support, this should trigger some form of a bounce. If it does not, that will be a definite technical negative.

Chart 2

Further down the yield curve, the 30-year series is close to its 2009-2020 support trend line. Long-term indicators remain very oversold, hinting that a primary trend reversal may be in the cards. However, the short-term series in this chart is in a bearish mode, which suggests that a challenge of that line is a distinct possibility.

Chart 3

Commodities are at Support

Most of the time, bond yields and commodities are moving in the same direction, so it's not surprising that the CRB Composite has fallen back to support in the form of the line joining the 2016, 2018 and 20019 lows. That support is enhanced in its significance because the extended green line is in the same vicinity. The principal difference lies in the fact that the long-term KST for this commodity index, while still bearish, looks like it is trying to move into positive territory.

Chart 4

Chart 5 shows that, if this is to happen, the Index will face an important interim test, as it is resting just above the red support line at a time when the short-term KST has gone bearish and the intermediate series has stalled. The two key Friday close benchmarks appear to be 185 on the upside (at the green line) and 170 on the downside (where the red line is currently positioned).

Chart 5

Chart 6 shows a similar picture for the DB Commodity ETF (DBC), where the price is just above support while the short-term KST is in a corrective mode.

Chart 6

Energy has a substantial weighting in both the CRB Composite and the DBC. In that respect, Chart 7 compares the West Texas Intermediate with the inverted oil VIX. The main point of the chart is to demonstrate that, when trend lines are constructed for both series and when those lines are violated, the trend of the oil price has a strong tendency to reverse. The latest data show both series literally right at important trend lines, which further underscores the critical technical position.

Chart 7

Finally, copper is another key commodity, symbolic of all the base metal family. Chart 8 demonstrates that both the 10-year yield and the copper price have also fallen back to key support trend lines.

Chart 8

On the one hand, recent economic data from reliable leading economic indicators argues in favor of higher yields and commodity prices. On the other, the potential spread of the coronavirus would negatively impact the global economy should it take place. Since all previous infectious diseases this century have been curtailed with limited effect, my bet is on the economy. Nonetheless, I am certainly keeping an eye over my shoulder.

Good luck and good charting,

Martin J. Pring

The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Groupof Walnut Creek or its affiliates.