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business newsInterim Peak in Bonds Coincides With Rebound in Mining Stocks
Global equities are very oversold while the mining stocks have rebounded from support without violating their summer lows.
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First we want to show that bonds have reached an extreme. Below is a composite sentiment indicator from the very trustworthy sentimentrader.com, which provides excellent sentiment data. Their indicator has nailed the last three peaks in bonds and I’m guessing it will be four for four.
The chart below illustrates that the gold stocks tend to bottom ahead of important peaks in bonds. On top we show the iShares Barclays 20+ Year Treas Bond (TLT) and below it the HUI Gold Bugs Index (^HUI). The past three peaks in TLT coincided with the early phase of a strong advance in the mining stocks. The 2005 peak in bonds lasted for two years while the 2008 peak lasted for the two years.
Click to enlarge
The recent widespread carnage came as a surprise to us as the gold stocks never provided any negative signals. However, we forgot about warning signals such as a surge in bonds and plunge in emerging markets, including China. Now its time to look forward. At present bonds have reached an overbought extreme; the risk reward is quite negative, and in turn, positive for other markets.
Meanwhile, global equities are very oversold while the mining stocks have rebounded from support without violating their summer lows. These equities are set to benefit as capital shifts out of bonds.
Editor's Note: See more from Jordan Roy-Byrne at The Daily Gold.
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