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“Cat: Where are you going?
Alice: Which way should I go?
Cat: That depends on where you are going.
Alice: I don’t know.
Cat: Then it doesn’t matter which way you go.”
― Lewis Carroll, Alice in Wonderland

Commentary & Analysis

Correction time? A quick look at stocks, bonds, gold, and the dollar…

I know it may sound odd, especially given what we’ve seen lately, but markets do correct. And usually, albeit these times may not be usual, markets correct when most of the players become complacent. I realize saying such is a simplistic and trite trading axiom, similar in tone to buy low and sell high. But it seems, at least qualitatively, complacency rules the day. Stocks are going higher, the dollar is going higher, interest rates are going higher and everyone knows it. It may not yet be a one-way bet crystalized consensus, but there may be a flashing yellow light we aren’t yet seeing. Time for a playable correction in key markets may be upon us.

Below are some of the pictures I follow each day and share with Black Swan clients; included are stocks (SPY etf), bonds (TLT etf), gold (GLD etf) and US dollar ($ Index). Based on the technical setup, I am thinking a playable correction may be close, or it has already started for each of these markets (we went long bonds in TLT on Wednesday in our Key Market Strategies service). And waiting for a bit more conformation to exit short gold (GLG) and go long. The expectation here is these “corrections” will be at least multi-week in duration. That said, we never know when a “correction” turns out to be a change in trend. Stay tuned.

Stocks (SPY): Turning over aka a distribution top?

Bonds (TLT): Rates seem ahead themselves given the macro environment….

Gold (GLG): We have seen a tight correlation between gold and bond prices, as you can see clearly by comparing the GLG chart below with the TLT chart above. So a bond correction should help gold if the correlation remains intact.

US Dollar Index (DXY): Daily momentum has turned down…

And my friend Victor reminded me about the Economist magazine cover this week—the course of the cover: