Bonds (TLT)
We haven’t spoken about on bonds since late June when we proposed a pair trade of short TLT, long gold, based on extreme short term divergence. This divergence is much narrower to the point that the trade is no longer makes sense.
Through the rest of the summer and fall, we would expect a short-term pop up followed by start of a new downtrend. There is one option for a new high to $132, but this would be in a rare up wave and wouldn’t go too far anyway. The main thing to consider is that rates are going higher.
The Dollar (UUP)
We have had our issues in calling the Dollar this year (we can blame many factors but until the US government is in circus mode it will continue to be hard) but we were bound to call the dollar correctly sooner or later.
As we said, the move to 93.53 after NFP hit our first target at the 23.6% Fib, and we would expect some sideways consolidation for now. The gap at $90.9 is now the new target for the expected decline.
So What’s the Take Away?
Last week gold made an attempt at a break-out but we remain unconvinced it is significant and silver dropped from its trend-line. However, the weekly lower close indicates some balancing of positions and the next attempt will have a higher chance of breaking and going on a run. Our target for Gold remains $1,330-40.
Oil is short-term inconclusive and we showed the two possible options. If the second bearish option were to play out, we would look to add at around $45. Otherwise just hold for north of $60.
Natural gas continues to drop. We are still looking for a reversal, but obviously we assumed it would happen sooner and the fall is extending further than we first expected. We believe that this week will bring a lower low and we should then see a strong reversal higher.
TLT has most likely peeked at $128.5 and is in the first stages of the next wave down.
The dollar finally found some solid ground and should stabilize above $92.3 for a few weeks before breaking lower in a new wave of declines.
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