There are new danger signals from bonds and gold for stock market bulls. Prudent investors would be wise to understand them.
Let’s explore the issue with the help of two charts.
Please click here for an annotated chart of iShares 20+ Year Treasury Bond ETF TLT.
Please click here for an annotated chart of S&P 500 ETF SPY. For the sake of transparency, this chart was previously published and no changes have been made.
Note the following:
• The first chart shows an “up” move in bonds has become a parabolic up move.
• From the first chart, pay attention to the big up move shown by the last bar.
• As the first chart shows, the parabolic up move in bonds is subsequent to a steady, strong up move as shown by the trend line on the chart.
• Prudent investors ought to note from the first chart that, so far, there have been four extreme overbought conditions in bonds as shown by RSI (relative strength index) approaching 100.
• Typically when RSI approaches 100, a significant pullback in price is expected unless it is a strong up-trending market.
• Note from the first chart that there have not been any material pullbacks in bond prices after RSI approached 100 the first three times. That augured for a parabolic move up, and that is exactly what is happening now.
• Note from the first chart that the parabolic move up is on heavy volume.
• Bond prices move inverse to their yields. The parabolic up move in bonds means a parabolic down move in yields.
• The second chart shows that The Arora Report gave four signals before the drop in the stock market.
• The four signals include short-selling Nasdaq 100 ETF QQQ or buying leveraged-inverse Nasdaq 100 ETF SQQQ, which goes up when the market goes down; increasing hedges to protect portfolios; taking profits on select ETF positions in our ZYX Global portfolio; and taking profits on a China ETF ASHR, in our ZYX Emerging portfolio. ETFs on which profits were taken include semiconductor equities ETF SMH, technology equities ETF IYW, China internet equities ETF KWEB, frontier markets ETF FM, small-cap Japan equities ETF DXJS and large-cap currency-hedged Japan equities ETF HEWJ….Read more at MarketWatch.
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