Treasury bond ETFs, Gold and Dollar Battle 200-day SMAs – Oil and SPY Remain Firmly Above Rising 200-day SMAs (Premium)

This report covers the intermarket arena: oil, bonds, gold and the Dollar. In particular, the 200-day SMAs are in play for the Treasury Bond ETFs, the 10-yr Treasury Yield, the Gold SPDR and the Dollar Bullish ETF. The Treasury bond ETFs and Dollar are just above their FALLING 200-day SMAs, and the Gold SPDR is just below its FALLING 200-day SMA. The 200-day SMA is not really a hard support or resistance level. Instead, it is a benchmark we can use to determine the long-term trend. An uptrend is more likely when price is above the 200-day and the 200-day is RISING. A downtrend is more likely when price is below the 200-day and the 200-day is FALLING. Oil and SPY are above their rising 200-day SMAs (clear uptrends). The picture of the others is more mixed. Let’s investigate.

Oil Tests Support Zone

Spot Crude remains in a long-term uptrend and is testing support from the March breakout and July low. The bar chart shows this support zone in the 65-69 area. There is also a rising channel of sorts to define the uptrend since March. With crude below its 50-day and RSI in the oversold zone (30-50), a short-term mean-reversion setup is also prominent. The candlestick chart shows the US Oil Fund (USO) retracing 50-67 percent of the prior pop and bouncing on Thursday.

TLT and IEF Hold above 200-day SMAs

The Treasury bond ETFs are in uptrends since March, but these uptrends retraced around half of the prior decline and could be big counter-trend advances. The first chart shows TLT falling over 20% (upper left) and then recouping half of this decline with a bounce to the low 150s. The bar chart shows TLT moving above the falling 200-day SMA in mid July and holding above. The bulls get the benefit of the doubt as long as TLT holds above 147 (the 200-day).

The next chart shows the 7-10 Yr Treasury Bond ETF (IEF) in the top window, the 10yr Yield in the middle and the 10yr Breakeven Inflation Rate in the lower window. The latter is the yield on the normal 10yr Treasury bond less the yield on the inflation-protected Treasury bond (see FRED for details). This number is basically the expected inflation rate and it is negatively correlated with IEF (positively correlated with the 10yr yield). Rising inflation is negative for Treasury bonds. The Breakeven Inflation Rate broke above its mid June and mid July peaks, and then fell back. The 10yr yield remains in a downtrend since April and is just below its rising 200-day. A break back above the 200-day would be bullish for yields and bearish for Treasuries.

GLD Battles Falling 200-day

The Gold SPDR (GLD) continues to hit resistance at the 200-day and 50-day SMAs. GLD bounced off the 67% retracement and broken resistance in early July, but did not follow through. GLD basically stalled and a break above 171 is needed to keep this upswing alive. The candlestick chart shows a short-term rising wedge and price hitting resistance after retracing 50% of the June decline. A break below the mid July lows would be bearish.

Dollar Hits Moment of Truth

The Dollar Bullish ETF (UUP) remains stuck in a consolidation: below the March high and above the falling 200-day SMA. Those with a bullish bias will call this a base and those with a bearish bias will call it a consolidation within a downtrend (blue lines). At this point, I still think the long-term trend is down for the Dollar and a break above the March high would argue otherwise. A break back below the falling 200-day would argue for a test of the prior lows and perhaps even a break. The chart in the upper left shows the Euro testing a big support zone. The bottom window shows GLD for reference. A Dollar break above the March high would be negative for gold, but a break below the falling 200-day would be positive.

Thanks for tuning in and have a great weekend!

-Arthur Hill, CMT
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