Still Only 1 Of 3 Macro Amigos To Destination

It’s the happy-go-lucky 3 Amigos (in play since we began this goofy metaphor last fall), which would signal macro changes to come. When you are talking about the macro however, things move slowly and to date, only one of our riders has made it to his destination.

To review, they are Amigos 1-3 (Chevy, Steve and Martin).

  1. Stocks vs. Gold
  2. 10yr & 30yr Yields
  3. The 10yr-2yr Yield Curve

Below we’ll review a daily (short-term) and monthly (long-term) chart of each to check the status.

Amigo #1: Stocks vs. Gold

We noted Amigo #1’s eyes closed as stocks vs. gold took a big plunge in early February and again in March. This has actually set a lower highs, lower lows downtrend in 2018, and the swings have been very dynamic. Right now we are on an up swing and if you are a gold bug and this ratio rises above the March high please prepare to take caution, as the macro would be moving against you, at least relative to risk ‘on’ assets. But for now the lower highs and lower lows daily trend is intact.

The big picture uptrend in SPX/Gold remains intact and our upside target is higher still, at around 2.5 which, while not shown on this chart is roughly a 38% Fib retrace from the 2011 low. We have noted that taking out the September 2017 low (shown above) would put cyclical players on notice for bad things to come. The ratio has not threatened that level. We are still cyclical and risk ‘on’ by this measure. But if the daily chart’s down trend resumes trend changes would have to start somewhere and that somewhere is a daily chart.

Amigo #2: Long-term Interest Rates

It has not been rocket science. Ever since we established the Continuum ™ as a way not to get fooled by the financial media and the hysterical news of the day, the 30 year yield and its monthly EMA 100 limiter (red dashed line) have been a simple guide about when to have caution on a rising yields stance. After all, decades of consistent history should be respected, shouldn’t it?

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