Fed’s Rate Decision Should Moderate the Volatility of Bonds, Gold, Oil, Dollar

NEW YORK (TheStreet) -- U.S. Treasury yields rose to new 2015 highs last week as investors expect the Federal Reserve to strongly hint that it will slowly but surely begin to raise the federal funds rate in September, with additional hikes dependent on what future economic data reveals.

Comex gold consolidated above an uptrend on its daily chart. Nymex crude oil and the euro versus the dollar traded between rising 50-day simple moving averages and declining 200-day simple moving averages.

Let's start by analyzing the trends for 10-year and 30-year Treasury bonds, then look at the daily chart for 20+ Year Treasury Bond ETF (TLT) which is down 6.3% year to date and has a negative weekly chart.

The yield on the 10-year not has been trending above its 200-day simple moving average of 2.163% since June 1, and set its 2015 high of 2.5% on June 11. The yield on the 30-year bond has been above its 200-day simple moving average since May 5, and last tested this average on May 29, when the average was 2.836%. The 2015 high yield was 3.227%, set on June 11.

Here's the daily chart for the bond exchange-traded fund.


Courtesy of MetaStock Xenith

Investors seeking the safety of the Treasury market can trade yields like a stock using the 20+ Year Treasury Bond ETF. This exchange-traded fund is a basket of Treasury bonds with maturities of 20 to 30 years. The price of the ETF rises when yields are falling and declines when yields are rising. And yields tend to fall when interest rates rise, and vice versa. 

The bond ETF closed at $117.95 on Friday, down 6.3% year-to-date, and below its 50-day and 200-day simple moving averages of $123.79 and $124.08, respectively. The 50-day is crossing below the 200-day in what technicians call a "death cross" for bonds.

A key level on technical charts of $114.44 should hold as the low end of trading until the end of June, as the expected rise in interest rates is likely factored into recent bond market weakness. If the FOMC maintains its dovish attitude towards raising interests rates, the bond ETF could retrace losses up to a key level on technical charts of $132.13, which will not expire until the end of 2015.

Here's the daily chart for the gold exchange-traded fund.


Courtesy of MetaStock Xenith

Investors looking to invest in gold like a stock should consider the SPDR Gold Shares ETF (GLD), which is backed by gold bullion and parallels the performance of Comex Gold futures contracts.

The gold ETF closed at $113.23 on Friday, down just 0.3% year-to-date, and below its 50-day and 200-day simple moving averages of $114.69 and $116.19, respectively. It has been in a death cross since Sept. 19. Note that its cycle low was $109.67, set on Nov. 5. This is a longer-term bottoming pattern before money flows back into gold if stocks slump.

A key weekly technical level of $112.35 will be a key level to hold on additional weakness. A trend above another technical level of $113.41 should enhance the upside. The upside potential above the 50-day and 200-day simple moving averages is to the 200-week simple moving average of $139.89.

Here's the daily chart for the commodity index ETF.


Courtesy of MetaStock Xenith

Investors trading crude oil like a stock are using the iShares GSCI Commodity-Index Trust Fund (GSG), which is 70% to 75% weighed toward energy and crude oil.

The commodity ETF closed at $21.04 Friday, down 2.5% year-to-date, settling near its 50-day simple moving average of $21.09, but well below its 200-day simple moving average of $23.47. This ETF has seen higher lows since trading as low as $18.81 on Jan. 29, and a slightly higher low of $18.83 on March 18 proved to be a key reversal with a close above the prior day's high.

If this ETF can break out above a key technical level of $21.67, the upside is to key levels of $23.20, which is in play until the end of June, and $24.02, which does not expire until the end of 2015.

Here's the daily chart for the dollar index ETF.


Courtesy of MetaStock Xenith

The Deutsche Bank USD Index (UUP) represents the dollar versus a basket of currencies; the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

The dollar ETF closed at $24.89 on Friday, up 3.8% year-to-date, and about midway between its 200-day simple moving average of $24.26 and its 50-day simple moving average of $25.30.

If this ETF stays above key technical levels of $24.10 and $23.42, look for dollar strength. If there's a breakout above another key level of $26.39, the upside momentum should increase. Those levels expire at the end of June, but the upside potential is into the range of $40.88 to $46.20, levels which won't expire until the end of 2015.

Investors not familiar with technical analysis should begin with the notion that a price chart for a stock shows a road map of past price performance, which provides guidance for predicting future share price direction.

Here's how to read a daily chart. There are two moving averages to follow; the 50-day simple moving average is in blue while the 200-day simple moving average is in green.

Here's how to read a weekly chart. This chart shows weekly price bars going back to the beginning of 2007 and thus includes the Crash of 2008, then the current bull market for stocks that began in March 2009. The red line tracks the ups and downs of the key weekly moving average. The green line is the 200-week simple moving average. The red line that oscillates along the bottom of the chart is the momentum reading on a scale of 00.00 to 100.00. A reading below 20.00 is oversold and a reading above 80.00 is overbought.

A technically positive weekly chart occurs when a stock ends a week above its key weekly moving average with the momentum reading rising above 20.00.

A technically negative weekly chart occurs when a stock ends a week below its key weekly moving average with the momentum reading declining below 80.00.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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