If Stock Market Swoons, 'Flight to Safety' Into Bonds and Gold Will Resume
As markets opened for trading Sunday evening, investors around the world were praying for the families of Paris in the wake of Friday's terrorist attacks. Caution was reflected with a modest decline in U.S. Treasury yields, a rise in the price of gold, slightly higher crude oil prices and a firm dollar. This continued the price moves that occurred in late trading on Friday.
Last week, the yield on the U.S. Treasury 30-year bond rose to its 200-week simple moving average of 3.14%, still below the June 26 high yield of 3.25%. Comex Gold Futures traded as low as $1,073.0 last Thursday vs. the July 24 low of $1,072.3. This means there has not been a break in the notion that portfolios need some "flight to safety" investments to hedge against a bear market for stocks.
Nymex Crude Oil declined on Friday but remains above its Aug. 24 low of $37.75. There are confusing opinions about the price of oil. Stocks have been rising as crude oil rises and energy stocks rebound. Keep in mind that when crude oil set its post-bubble low of $33.20 in January 2009, gasoline at the pump was below $1.50 per gallon. This is the price that would help an economic recovery on Main Street, USA.
The euro is well above its 2015 low of 1.0456 set on March 16 and well below its 2015 high of 1.1711 set on Aug. 24. The recent trend favoring the dollar reflects the potential of a rate hike on Dec. 16.
One date of importance is worth discussion. "Black Monday" in China on Aug. 24 affected all markets around the globe. The 30-Year bond yield tested 2.624% that day, the lowest yield of the second half of the year. Gold traded as high as $1,169.8 the Troy ounce that day, the highest level before a subsequent high set on Oct. 14. Oil set a second-half low that day, while the euro reached its 2015 high. What happens in China spreads around the world.
To trade these markets like stocks, here are four key exchange-traded funds.
Here's the weekly chart for the Bond ETF.
Courtesy of MetaStock Xenith
The 20+ Year Treasury Bond ETF (TLT) - Get Report , which is a basket of U.S. Treasury bonds with maturities of 20+-Years to 30-Years had a close of $119.68 on Friday, down 3.1% so far in the fourth quarter and down 5.0% year to date.
The weekly chart has been negative since Oct. 30 and remains negative with the ETF below its key weekly moving average of $121.60. The 200-week simple moving average of $117.64 remains a key level to hold on weakness. The weekly momentum reading declined to 35.38 last week down from 42.98 on Nov. 6.
Investors looking to buy the bond ETF should place a good-till-canceled limit order to buy the ETF if it drops to $117.11 and $115.58, which are key levels on technical charts until the end of November and the end of the year, respectively.
Investors looking to reduce holdings should place a good-until-canceled limit order to sell the ETF if it rises to $122.70, which is a level on technical charts until the end of 2015.
Here's the weekly chart for the Gold exchange-traded fund.
Courtesy of MetaStock Xenith
The SPDR Gold Shares ETF (GLD) - Get Report , which is backed by gold bullion, had a close of $103.56 on Friday, down 3.1% so far in the fourth quarter and down 8.8% year to date.
The weekly chart has been negative since Oct. 30 and remains so with the ETF below its key weekly moving average of $107.74 and well below its 200-week simple moving average of $133.57. The weekly momentum reading fell to 46.33 last week down from 60.52 on Nov. 6. The downtrend support comes in at $101.26 this week.
Investors looking to buy the gold ETF should place a good-till-canceled limit order to buy the ETF if it drops to $102.33, which is a key level on technical charts until the end of 2015.
There are key levels of $104.46 and $105.02 in play until the end of November and the end of 2015, respectively.
Investors looking to reduce holdings should place a good-until-canceled limit order to sell the ETF if it rises to $111.70, which is a key level on technical charts until the end of this week.
Here's the daily chart for the Commodity-Index ETF.
Courtesy of MetaStock Xenith
The iShares GSCI Commodity-Index Trust Fund (GSG) - Get Report , which is 70% to 75% weighed to energy and crude oil, had a close of $15.71 on Friday, down 8% so far in the fourth quarter and down 27.2% year to date.
The weekly chart shifted to negative on Oct. 30 and stays negative, with the ETF below its key weekly moving average of $16.89 and well below its 200-week simple moving average of $29.17. The weekly momentum reading declined to 35.77 last week down from 40.36 on Nov. 6.
Note that this ETF has been below its post-crash 2008 low of $21.85 set in February 2009 since May 15. A reason for renewed selling pressure was the inability for the ETF to breakout above key levels of $17.11 and $17.62, in play until the end of November and end of 2015, respectively.
Investors looking to reduce holdings should place a good-until-canceled limit order to sell the ETF if it rises to $24.02 and $25.38, which are key levels on technical charts until the end of 2015.
Here's the weekly chart for the Dollar Index ETF.
Courtesy of MetaStock Xenith
The Deutsche Bank USD Index (UUP) - Get Report , which is basket of currencies including the Euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, had a close of $25.76 on Friday up 2.6% so far in the fourth quarter and up 7.5% year to date.
The weekly chart has been positive since Oct. 23 and stays positive with the ETF above its key weekly moving average of $25.32, and well above its 200-week simple moving average of $22.82. The weekly momentum reading rose to 71.21 last week up from 62.28 on Nov. 6.
The key to maintaining dollar strength is staying above key levels of $25.33 and $25.53, which are key levels in play until the end of November and the end of 2015, respectively.
Investors looking to buy the dollar ETF should place a good-till-canceled limit order to buy the ETF if it drops to $24.03, which is a key level on technical charts until the end of 2015.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.