Bonds: Stubbornly Refuse to Roll
Stocks: Go Out on Top
Commodities: Grain Markets Pop
Currencies: Dollar Down, Aussie Up
Bonds
US Treasuries continue to hold above support, while other areas of the bond market point to higher rates and an increase in demand for risk assets.
TLT vs. SPY
I included this chart in one of my last posts of 2020. It very clearly points to higher stock prices and lower bond prices, and implies we are entering a market environment that favors risk assets.
Though stocks, commodities, and other assets associated with risk appetite have provided ample buying opportunities at major breakout levels, bonds on the other hand have continued to chop sideways.
Patience is a virtue, especially in trading, and the bond market currently acts as a friendly reminder.
10yr. T-Note
I prefer the topping pattern in the 10yr. T-Note over the 30 yr. T-Bond. Its shape is more defined, and the neckline is cleaner. I like selling the 10yr. T-Notes below 137^060.
30yr. T-Bond
When interest rates do begin to rise, the higher beta will lie further out on the curve. I like selling the 30yr. T-Bond below 170^00.
High Yield Bonds
I have included the High Yield Corporate Bond ETF against its safer alternatives: the Corporate Investment Grade Bond ETF (LQD), and the US Treasury Bond ETF (TLT). These charts look almost exactly the same and they should. The numerator (HYG) is the same, and the differences in risk profiles associated between LQD and TLT are slight, however LQD is more competitive.
Both of these charts express the same idea, an increase in risk appetite. I would like to see HYG overtake LQD at current levels and really kick the new year off.
TIPS
TIPS completed a bullish flag in early December. Market participants are readying themselves for higher rates.
Stocks
Over the last month I have written about the overall environment of global equities, and the strengthening demand found around the world. This week I will shift gears and briefly cover the futures contracts of the major US indexes.
Dow Futures
The Dow closed last week, and 2020, at new all-time weekly closing highs. It now hovers above former resistance, and should find support around 29,500.
S&P 500 Futures
The S&P 500 futures also closed the year out on a high. The fact that the equity markets had such a strong close at the end of the year and before a three-day weekend, speaks to continued strength into the week ahead.
Nasdaq 100 Futures
The Nasdaq continues to grind higher.
Russell 2000 Futures
The Russell 2000 has really turned it on in the last few months. The volatility on December 21st may have found an area of support around 1,875.
Commodities
There's a lot going on in the commodity markets heading into the first trading day of the year. I will expand on the charts presented below in the coming weeks.
CRB Commodity Continuous Index
2021 could be a big year for commodities. Gold led the charge back in the summer of 2019, and now the rest of the commodity markets are taking part in the fun. Big breakouts from massive bases is the norm, and the TRCCI is a great representation of the current environment.
Gold
Gold found support at the 161.8% Fibonacci expansion level from the 6.5 year base completed in June, 2019. I believe a trade could be setting up on the daily chart.
Gold might be the only market I view as a trading opportunity heading into the first week of the year. A well-defined channel could be completed with a close above 1,912.5.
Silver
I would like to see Silver form a short-term consolidation pattern just below resistance at the 28.50 level.
Platinum
Platinum finished the year back above the key area of resistance at 1,025. From a tactical stand point, platinum has not been the most friendly, but the shiny metal could provide plenty of trading opportunities in 2021.
I hold platinum in the same regard as Minneapolis wheat. Both are greatly undervalued relative to their peers.
EW Grain Index
I put this index together for an earlier post on grain markets. The present, near vertical slope of the line sums up the current environment in these markets. For the most part, these markets have already blasted off, and do not present any reasonable opportunities on the daily charts.
I will cover all of these markets in a post later in the week.
Corn
I included Corn to represent the grain markets because it had an extremely strong close heading into the end of the year, producing a candlestick with a shaven head by closing at the high of the session. It also confirmed the breakout of a 6.5 year base
The daily chart of Corn provides a great perspective on the difficulties of entering the market at current levels. Grains are ripping.
Here are a few commodity markets that are nearing or at breakout levels:
Sugar #11
I would argue that NY Sugar has already broken out, based on the weekly close. I like to ignore spindles when it comes to breakout levels, especially on weekly charts. Though spindles, or wicks, are full of information regarding the struggle between buyers and sellers, the closing price is the most important price of the day. That is amplified on the weekly scale.
Sugar #5
The London contract has not broken out yet. A decisive close above 424.00 would complete the bottoming pattern, in my opinion.
OJ
Orange Juice is forming a possible H&S Bottom. The right shoulder appears to be forming a H&S pattern itself which adds a level of conviction to the interpretation.
Currencies
This week I want to include a few market indexes. Next week I will get back to covering individual crosses and futures contracts.
The Dollar Index
The level between 88.50-88.25 stands as the last outpost of support in the DXY Index. It will be interesting to see how price reacts at that level, but major support has essentially been broken.
Emerging Market Currency Fund - CEW
Emerging market currencies are starting to regain short-term strength over the USD. The trend remains up for emerging market currencies, adding conviction to a weakening USD thesis.
Custom AUD Index
The chart below is an index of the AUD against the DXY constituents along with the USD. It looks very similar to the AUD/JPY cross, and carries a very similar message...risk-on!
AUD vs. BRICS Currencies
The Aussie Dollar recently broke out of a tight, bullish consolidation. It continues to show broad market strength, supporting a bullish thesis for emerging markets and commodities.
Crypto
Do these markets ever close?...apparently not!
Bitcoin
Bitcoin is a monster. The Fib expansion levels presented below have come into play, but this market is on a tear. The $45,000 level might slow the market down, or price action could rip right through on its way to $50,000.
Ethereum
Next stop for Ethereum is $881.50 and the 61.8 % Fibonacci retracement level.
*I started putting this report together Saturday evening after the crypto markets posted a closing price. Ethereum has since broken above the $881.50 price level. Former all-time highs are now in its sights.
Litecoin
A solid close above $142 in Litecoin would confirm the breakout of a possible 3yr Symmetrical Triangle.
RIOT
An alternative to physical coins are the mining stocks. RIOT is a great example. Next stop lies around 27.00 and the 685.4% Fib expansion level.
I don't think the environment will change too much next week. If anything, I think it will strengthen the call towards stocks and commodities, and away from bonds. We shall see.
Thanks for reading! If you have any questions or comments, please feel free to contact me at ianculley@culleycharts.com
DISCLAIMER: All information and opinions expressed by Culley Charts are strictly that, and should not be construed as investment advice. Market participation comes with inherent risk, and the responsibility of managing this risk lies solely with each individual investor.
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