With the U.S. economy poised to accelerate under a Donald Trump administration, it's going to become increasingly important to track three monetary metrics: long-term interest rates, the dollar's value and inflation, Jim Cramer said during his Mad Money program's "Off the Charts" segment.
To get a handle on those, Cramer turned for insight to Robert Moreno, a colleague at RealMoney.com, as well as being the publisher of RightViewTrading.com.
Take interest rates first. For about the last two decades 20-year Treasury bond yields have been declining (and, conversely, prices rising). That's the result of an anemic economy and an accommodative Federal Reserve. Lately, though, those yields have been rising, thanks to the expectation that the Fed will raise interest rates this month -- and the Trump administration's expected fiscal stimulus. At the very least, Trump wants to borrow lots of money, and that's going to hike the interest the government pays on Treasurys.
One good way to track long-term U.S. interest rates is with the ProShares UltraShort Lehman 20+ Yr ETF (TBT) - Get Report , says Moreno. This security, which is charted below, lets traders bet against 20-year Treasury bond prices with double the firepower. When bond prices go down, TBT goes up.
Note that the TBT bottomed below $30 in July, but since then it has rebounded and lately it's been on fire. Moreno believes TBT is preparing for another leg higher. Momentum indicators like the relative strength index (RSI) and the moving average convergence divergence line (MACD) are both tracking higher. In addition, TBT's recent run came on very heavy volume, another sign that this is a durable increase. Meanwhile, Moreno points out that the accumulation/distribution line just made a bullish crossover, and the Chaikin Money Flow oscillator has moved into positive territory -- both are signs of institutional buying.
In other words, interest rates are going up.
The value of the greenback is a second metric that bears watching during a Trump administration. Moreno thinks the dollar will climb because the Fed is about to raise interest rates, which means foreign investors will want to move their money here to take advantage of those higher rates. To do that they will need to buy dollars, which raises the currency's value. Moreno says some of the ETFs that track the dollar signal more signs of strength.
Note how the chart above shows the dollar trading in a wide horizontal channel for the last two years and this month's break above the upper boundary of the pattern.
The third key metric is inflation, which Moreno likes to measure with the Reuters/Jefferies CRB Index. It reflects the prices of a broad basket of commodities, from metals to oil to agricultural products. As the monthly chart below shows, the last decade has been deflationary. After getting nearly cut in half from mid-2014 through this past January, this commodity index bounced back, although in recent months it's been trading sideways in a pretty narrow channel, also known as a cup-and-handle pattern. It's a reliable signal that the index is preparing to make another sizable move higher.
Said Cramer, these technical indicators signal long-term interest rates are heading higher, the dollar's going to keep rallying and inflation will soon rear its ugly head.