Tuesday, September 1, 2009

The Technical Take: $TNX, $DXY, Gold

It is the end of the month. There has been a sell signal in the 10 year Treasury yield. The Dollar Index remains under pressure, and gold still looks appealing.

Figure 1 is a monthly chart of the 10 year Treasury yield (symbol: $TNX.X). A monthly close below the pivot low point (or support level) at 3.432% is a sell signal. While I had been expecting yields to undergo a secular trend change and move appreciably higher over the next year, this notion is on hold for now.

As stated previously, this sell signal in Treasury yields is reminiscent of the sell signal seen at the peak of the equity market in Spring, 2002.

Figure 1. $TNX.X/ monthly

The Dollar Index (symbol: $DXY) remains in a down trend although it has yet to gain much momentum. Downside momentum was expected especially since prices closed below the low of a positive divergence bar several weeks ago. A weekly close above 79.46 would be reason enough to reconsider the notion of a weaker Dollar.

Figure 2. $DXY/ weekly

Figure 3 is a concept that I have put forward before, and it is gold's performance relative to a basket of 8 currencies.Those currencies are: 1) Australian Dollar; 2) Canadian Dollar; 3) Swiss Franc; 4) Eurodollar; 5) British Pound; 6) Singaporean Dollar; 7) Japanese Yen; 8) US Dollar. This is a weekly chart. Relative to other currencies, gold continues to outperform, and it has turned higher although price has yet to do so.

Figure 3. Gold v. Currencies/ weekly


DavidDT said...

TNX sell signal was a while back, about 10 weeks ago
DXY buy was about 4 weeks ago

Guy M. Lerner said...

Hi David

I looked at the links and all I can say is it reproducible over multiple time frames, multiple markets, and market environments?

Can you quantify what you see?

Plus your buy or sell signal is different from mine only because there is no time frame component attached to yours. I could say that the US stock market is a good buy right now provided I hold 20 years - in all likelihood I would be right. If I hold 3 days like most seem to do, today probably wasn't a good day to buy. What gets lost in most signals or folks saying this or that is a buy or sell is the time component - how long is your expected holding period - and draw down on the trade - how much do you expect to lose at any point in time over the life of the trade.

Thanks for contributing the links however

Mike said...

Hi Guy. I emailed you few weeks back about natural gas. Is there data publicly available to construct a Smart money vs Dumb money indicator for NG? If not, what is your technical take on it?

Dacian said...


Thanks for this new post; like I said, the deflationary environment should be supportive for the $; the markets can do whatever they, including throwing away resistance/supports, etc. as we see this days all sorts of false breakouts and volatility; thanks Bernanke!

I'm intrigued by Japan; can we have an update on EWJ?

And a small question regarding the "next big thing" indicator; you mentioned in your last update on EWJ that a secular trend change is in the cards (as per NBT) and higher prices are to be expected over the next 12 months. What do you call "secular trend"? A 12 months move or something more (15-20 years)?

What intrigues me is that we had a secular bear in Japan (20 years) and indeed a secular change might happen here; we are at the same levels as we were in the 80s; but I think we are in a secular bear for US markets (we started in 2000 and probable we have few more years to go). I know each market has its own reality, but we see in the same time how markets are interconnected today (as well as our economies); so the question is, can Japan switch to a secular bull from here with US continue with its secular bear for few more years?

Thanks in advance!

DavidDT said...

agree on different timeframes..in general.
I never set "projected hold period" - I hold for as long as my perception variant does not change.
Also, there is a a time frame attached to thos echarts - weekly - so initial hold is few weeks/months.
yes, it works for any markets, any time periods.
WOrked fine on long /ZN right at the moment when everyone was saying "down to 0" (heard it so many times)

And I agree that if one to hold trade for 20 years...profit, not counting inflation, will eventually show up...but I don't want to buy back in 1966 and be still there today (or few months ago)
And I am not speaking "in hindsight" - all my "calls" are well documented at my site, youtube etc.
BTW - thank you for your great site - I find it indispensable to keep up with "bigger picture"

DavidDT said...

forgot to add :)
Time for me is more important than price

Guy M. Lerner said...


I appreciate the positive feedback and outlook as well.

One other thing that I forgot to mention that is important in my analysis is trade efficiency...profits earned for time in the market v. draw down.

I don't set a projected hold period either but knowing how long a trade might go (due to prior trade set ups) and the characteristics of that trade (i.e., the ups and down) may be comforting to know that things are going to plan

DavidDT said...

fair comments
my r/r is AT least 1.6 - that is the cut of ratio and I don't touch anything close to that too often..unless I am bored...and I don't trade for excitement - I trade bor bread (Rounders movie - I think :)
normally r/r 3-5 at least

Time expectancy - if it is based on daily signals - time in trade (as long as it works) - 5-10 trading days
I am in cash about 60% of the time...I think- never was in stats really
Now off to reading your opinion on widow maker :)