Dollar Surges, Gold and Treasuries Buckle, 10-yr Yield Goes for Breakout, QQQJ Hits Resistance (Premium)

There is nothing like a Fed meeting to shake up the market. Thus, I am going to cover the intermarket ETFs a day early because there are some reversals and patterns we should be aware of. There appears to be a change in thinking at the Fed and the Fed is still the elephant in the room when it comes to the Dollar, bonds, interest rates and gold. This shift could also affect stocks because SPY is largely negatively correlated to the greenback and rising yields could weigh on stocks with high growth rates.

Dollar Surges after FOMC Meeting

Wednesday’s FOMC policy statement did not start with the threat of the coronavirus. Instead, the statement began by highlighting the progress of vaccines and then talked about the strengthening economy. This change affected the Dollar (up big), the 7-10 Yr Treasury Bond ETF (down big), the 10-yr Treasury yield (up big) and Gold (down big). US stocks were down somewhat, but several international ETFs were hit: the Core Emerging Markets ETF (IEMG) was down 1.4%, the Eurozone iShares (EZU) were down 1% and the China Large-Cap ETF (FXI) was down 1.5%.

Interested in seasonality? See this article/video covering the best/worst six months and the individual months with performance metrics and equity curves.

Dollar Surges off Support

The first chart shows the Dollar Bullish ETF (UUP) surging off the January lows to affirm support, of which I was (wrongly) skeptical. The .821% surge on Wednesday was the biggest one day advance since June 11th, 2020. This makes it an outsized move of sorts and we could see some follow through above the 200-day SMA. While relationships change, the Dollar is typically negatively correlated with stocks and gold. Thus, further strength in the Dollar could be negative for both.

Gold Reverses Upswing

The Gold SPDR (GLD) reversed its upswing with a channel break and move below the 200-day SMA. The line chart in the upper right shows a series of lower highs and lower lows since summer 2020. The most recent 13.5% surge was strong, but did not exceed the January high and a lower high ultimately formed. Thus, the long-term trend for GLD is down and the swing within this bigger downtrend is also down. The Silver ETF (SLV) and Gold Miners ETF (GDX) are positively correlated with gold and will move in the same direction. Thus, I cannot be bullish on GDX and SLV when I am bearish on GLD.

IEF Forms Bearish Continuation Pattern

The 7-10 Yr Treasury Bond ETF (IEF) fell .69% on Wednesday and the 20+ Yr Treasury Bond ETF (TLT) was pretty much unchanged (-.09%). I am not sure what is going on there, but the long-term trends for both are down. The chart below shows IEF falling over 8% and then bouncing back towards the trendline extending down from the 2020 highs (upper left). IEF is still well below its falling 200-day SMA. On the bar chart, IEF formed a rising channel since April and this is viewed as a correction within a bigger downtrend. In other words, it is a bearish continuation pattern. A break below 114 would signal a continuation lower and open the door to new lows. This implies that the 10-yr yield is headed toward 2% (it is currently 1.569%).

QQQJ Zigzags Lower

The Nasdaq 100 Next Gen ETF (QQQJ) represents the high growth end of the Nasdaq. These are the next 100 biggest stocks, after the stocks in the Nasdaq 100 ETF (QQQ). Rumor has it that high growth stocks do not like rising interest rates. I am not one to buy into narratives, but QQQJ has been trending lower since mid February with a series of lower lows and lower highs. The line chart in the upper left shows a lower low in mid May (closing prices). On the bar chart, QQQJ surged some 10% from mid May to mid June is near a resistance zone marked by the March-April highs. The swing since mid May remains up with support marked at 32.80. A break here would reverse the upswing within the bigger downtrend.  

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
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