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Oil Pulling Back, Gold Retesting Lows: What 8 Key Charts Are Signaling

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A roundup of patterns seen in today's most important markets.

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From Japanese bonds to US corporate debt, and from biotechs to oil and gold, here's a roundup of several key charts and what they're indicating about today's markets.
  • WTI oil is pulling back about $1. There's a distinct inverse head-and-shoulders pattern on the daily chart, but for the right shoulder not to break down, the price must hold $91.80. If that fails it could get nasty down to $85.89. Upside resistance is $97.47. Note that $91.80 and $97.47 are the key levels on traditional charts as well as reflecting TDST Level Up and Level Down on DeMark daily charts.
  • Gold seems to want to retest the April lows; momentum divergences and DeMark counts should be good tells on whether the test will be successful or another sharp leg down is in the offing. In any case, no great risk/reward setup until the $1,350 area in my humble opinion.
  • Italian and Spanish bond yields continue to rise while their CDSs remain flat to lower; I tweeted a few days back when this divergence first showed up, that this needs to be watched closely; if rising rates start being divorced from rising credit risk, the market could be signaling: i) confidence in an economic recovery; ii) government walking away from fiscal discipline; iii) bond vigilantes tired of money printing; or iv) a mix of all of the above. What all these scenarios bring into play is more pressure on central banks to stop their insane behavior, something that equity markets – at least initially – may not appreciate.
  • The swings in the yen and Japanese government bonds have been "flash crash"-like in speed and size; it would be "awkward" to say the least if the BOJ had to put a bid under the yen/bonds to calm things down, considering that it has set out to structurally weaken the yen. Messing with currencies is like messing with nature: It makes you feel like a genius until you lose control of your Frankenstein monster. Once that happens, in a world of fiat-/confidence-based currencies, confidence can evaporate very quickly, and it becomes very difficult (or impossible) to put the monster back in the cage.
  • Wheelbarrows of corporate bonds continue to come to market daily. Just on Monday and Tuesday the tally is more than $26 billion across a slew of issuers; deals are regularly upsized and prices go off lower than initial indications. After dropping below 5%, average yields on junk paper are back in 520bps area, although about half of the increase is attributable to increase in Treasury yields. After a multi-week slide, CDSs of large US financials are flattening out near multi-month lows. The 2-year swaps appear to have settled in the 14bps range.
  • Once again, yesterday's close on the iShares Nasdaq Biotech Fund (NASDAQ:IBB) was outside the upper Bollinger band; I've been harping on how overextended the IBB has gotten for the last $20, but the longer it grows to the sky the more those $20 will likely be made up even faster on the way down.
Twitter: @FZucchi
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