Long Bonds and Gold Rally Amidst Market Chaos

On March 7, we asked Will the Market Internals Turn More Bearish?

TLT Daily Chart

While we focused mainly on Jerome Powell’s testimony, where he said, 

"If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."

In the same Daily, we featured the long bonds (TLT) and that the chart had a constructive exhaustion gap bottom in play.

We went on to write,

"The Real Motion indicator shows a positive divergence as momentum is just under the 50-DMA while the price is considerably below its 50-DMA.”

The question asked was, why would the long bonds bottom?

Our answer,

“It could mean that while the short-term yields invert, the market expects a recession, hence a flight to safety in long bonds. We imagine that should 20+ year bonds continue to go north, that too can be inflationary.”

We started the year by introducing our report, How to Grow Your Wealth in 2023. In this Year of the Yin Water Rabbit, we began with:

You Can’t Run with the Hare and Hunt with the Hounds.

Little did we know then, how well this describes the Federal Reserve, the reversal in TLTs, and the catalyst of 2023’s biggest dilemma of all-

Recession or Stagflation-What will it be?

More from the Report:

“For 2023, one word and two expressions keep coming up:

Chaos

Trying to fit a square peg into a round hole.

Looking for Inflation in All the Wrong Places”

Of course, the biggest headline this week in finance is the collapse of SVB Financial Group (NASDAQ:SIVB) and Silvergate Capital Corp (NYSE:SI). That sounds a lot like Chaos.

The full fallout is unknown, but if the market has anything to say about it, both long bonds and gold rallied.

Folks calling for deflation are using Money Supply decline as an example. They are citing “higher for longer” concerning rates.

They are talking about the strong labor market.

BUT

That is more like trying to fit a square peg into a round hole. Five reasons why folks are looking for inflation in all the wrong places:

1. Climate-Natural Disasters
2. Food shortages could prevail-hoarding-sugar prices flying
3. Social unrest from high inflation, higher yields, and losing credibility (banks, government) CLASSIC example this week.
4. Geopolitics-rising tides of issues-we hope not but be prepared.
5. Government spending/Federal Reserve-what are they going to do now? Print? Save the banks? Keep raising rates creating more liquidity crises?

The chart of the TLTs shows the price clearing the 50-DMA. That is an unconfirmed phase change to Recuperation. A second consecutive close above will confirm the phase change.

The Leadership indicator tells a story as bonds well outperform the SPDR® S&P 500 (NYSE:SPY).

And the Real Motion of the momentum indicator, already with a positive diversion as mentioned on March 7, could now stay in gear.

Could the picture reverse next week? Yes. However, to quote the Report:

“The lesson we should take from this is not that inflation is destined to move to new highs in the months ahead (after all, nearly 30% of the time, it is, in fact, cresting!), but that we dismiss that possibility at our peril."

ETF Summary

• S&P 500 (SPY) Our trading range theory was 4200-3200-maybe
• Russell 2000 (IWM) 170 next major support 182 resistance
• Dow (DIA) 310 support 324 resistance
• Nasdaq (QQQ) Unconfirmed bearish phase-confirms if second close under 290
• Regional banks (KRE) may be overdone for now but not necessarily done. 40 target 55 resistance
• Semiconductors (SMH) Still in a bullish phase-over, 240-maybe a pop for everything
• Transportation (IYT) 223, the 200-DMA major support-2nd in strength to SMH
• Biotechnology (IBB) Teetering on the 80-month MA at 121.
• Retail (XRT) Under 64 remains weak-next ample support at 56.00