Signals, False Signals Mark Markets Activity
For the major equity averages, the daily charts became overbought and some now have declining momentum. The weekly charts will likely remain positive for the major equity averages, but Dow Industrials and Dow Transports could end the week with neutral weekly charts.
The 200-day Simple Moving Averages: The yield on the 10-Year U.S. Treasury note held its 200-day simple moving average at 1.861% on Tuesday and declined on Wednesday and Thursday in anticipation of QE3 after the FOMC meets on Sept. 12.
Comex gold broke out above its 200-day simple moving average at $1,649.8 on Wednesday and traded as high as $1,677.5 the Troy ounce on Thursday, as QE3 threatens inflation.
Nymex crude oil broke out above its 200-day simple moving average at $96.74 on Wednesday, but after a high of $98.29 on Thursday, oil closed below Wednesday's low at $96.26 and the 200-day for a "key reversal" day. The reversal in crude oil reflects economic weakness.
Analysis of the yield on the 10-Year Treasury note (1.673): After trading to an all-time low yield at 1.377% on July 25, the yield of the U.S. Treasury 10-Year note rose to the 200-day simple moving average at 1.863% this week, as shown on the daily chart below.
This was also a test of my semiannual/quarterly value levels at 1.853%/1.869%, which was my target following a call for higher yields after the test of my semiannual risky level at 1.389%. The weekly chart will continue to favor higher yields given a close today above the five-week modified moving average at 1.642%.
Chart Courtesy of Thomson/Reuters
Analysis of Comex Gold ($1672.2): After stabilizing around my annual pivot at $1575.8 the Troy ounce since mid-May, Comex gold gathered upward momentum and broke out above its 200-day simple moving average at $1648.9 on Wednesday.