TLT Forms a Big Wedge, GLD goes for Breakout, Dollar Stalls after Becoming Overbought (Premium)

This commentary will cover bonds, gold, silver and the Dollar. Oil was covered in the ETF Report on Wednesday. TLT and the 10-yr Yield have big continuation patterns working, but the swings within these patterns are going the other way. Gold is going for a breakout as silver surges off support. The Dollar became overbought after a big advance and stalled the last few weeks.

December Schedule

Note that I usually take off between Christmas and New Year, but will make time on Wednesday, December 29th for a commentary/update. The normal commentary schedule will resume on Monday, January 3rd. The holiday scheduling will be as follows:

  • Thursday 23-Dec: Weekly Video
  • Friday 24-Dec: Christmas Eve (day off)
  • Saturday 25-Dec: Christmas Day (day off)
  • Wednesday 29-Dec: ETF/Market Commentary

Big Wedge Little Wedge For TLT

The 20+ Yr Treasury Bond ETF (TLT) remains in an uptrend since March and the December pullback looks like a short-term bullish continuation pattern (falling wedge). The big pattern is a rising wedge since March. Even though this could be a large counter trend advance, the trend is up as long as the wedge rises. A break below the November lows would reverse this wedge and the bigger uptrend in TLT. Such a move would signal a continuation of the prior decline (August to March) and be quite bearish. Short-term, TLT surged in late November and fell back in December with a falling wedge. A break above last week’s highs would reverse this fall and open the door to further gains.

The 10-yr Treasury Yield, which corresponds more to the 7-10 Yr Treasury Bond ETF (IEF) than TLT, remains in a large trading range (triangle) and the swing within this range is down. The triangle could be a large bullish consolidation (weekly chart) after the big advance from August to March. A breakout at 1.70 would break triangle resistance and argue for a move towards 2%. First however, the swing within the triangle reversed with the sharp decline into early December. This makes me bearish on TNX as long as the December high holds (red line). A breakout there would be quite positive and argue for a bigger breakout in the 1.70 area.

Gold Goes for Another Breakout

The Gold SPDR (GLD) chart does not display a consistent uptrend with a clear ebb-and-flow, but I see more signs of uptrend than downtrend. Truth be told, one could argue either way on this chart because GLD has gone nowhere for months. First, I see a 13% advance from March to May and this is considered a primary move. Second, the decline into August-September is viewed as a correction after this advance. Third, the 8% advance and breakout signaled an end to this correction. And finally, the ETF retraced 2/3 of this advance with a sharp decline in late November, firmed into December and broke out over the last five days. This breakout is bullish and I would re-evaluate on a close below 165.

The Silver ETF (SLV) is also making a move as it tested support in the 20 area and broke short-term resistance with a surge on Wednesday. Note that SLV is in a downtrend and this is a bottom picking exercise. However, also note that GLD and SLV have a very high positive correlation and a breakout in GLD is bullish for SLV. In fact, chartists can use signals in gold to trade silver. Buyer beware because silver is much more volatile and riskier than gold.

Dollar Stalls after Becoming Overbought

The Dollar Bullish ETF (UUP) remains in an uptrend, but became overbought in early December and stalled the last few weeks. This stall looks like a pennant, which is a short-term bullish continuation pattern. UUP is currently at the lower line and a surge off this line would be positive. A break below last week’s lows would negate this pennant and argue for a pullback within this uptrend. Perhaps to the 25.4-25.5 area.

Thanks for tuning in and happy Thursday!

-Arthur Hill, CMT
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