What Are The Markets Telling Us?: January 14, 2018

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WHAT ARE THE

MARKETS
TELLING US? January 14, 2018
The euro has broken-out to a new bull-market high and the U.S. Dollar
Index has registered a new low. U.S. Treasury, German and Japanese
10-year bond yields appear poised for a major breakout. The shift in global
capital-flows is accelerating and will likely continue to favor the previously
longest-depressed markets. In WATMTU, December 24, 2017, we wrote: “The
risk/reward dynamics for global investors are as extreme as we can recall in
many years. The deflation era’s biggest winners and most-crowded markets
appear exhausted, while the uptrends in the previously longest-depressed
markets appear poised for a long and sustained advance.”
Since their December lows, UST 10-year yields have advanced 0.22% to 2.55%,
while German 10-year yields have doubled from 0.29% to 0.58%—now only
0.02% below the July 2017 high. Key reflation-markets and related-indicators
have continued to advance sharply in the new year: Metals & Mining (XME)
+7.7%, Oil Services (OSX) +9.1%, WTI Oil +6.6%, and Gold +2.2%. The euro
is up 1.6% in January and up 3.9% from the mid-December low, while the U.S.
Dollar Index (DXY) is down 1.2% in January and has declined 3.6% from the mid-
December high.
This price-action supports the view that the uptrends in many of the previously
longest-depressed markets are accelerating sharply. The long-term charts
and momentum measures for the DXY, euro and gold are especially intriguing.
The technical clues suggest that it would not be surprising to see a large selloff
in the DXY in the coming months, which could fuel a decisive breakout and
a sharp uptrend in USD-denominated gold.
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WHAT ARE THE MARKETS TELLING US?

January 14, 2018
CHART 1: U.S. Dollar Index (DXY) – Monthly and Weekly. The multi-decade
charts below show that the DXY fell sharply in the first 2-3 years once the dollar’s
previous 15-year cycles turned downward.
Source: StockCharts.com

January 14, 2018
CHART 2: U.S. Dollar Index (DXY) – Weekly. While the September-to-

November counter-trend rally reversed the RSI momentum indicator’s over-sold
condition, the weekly moving-average “ribbon” continued to decline sharply—
indicating sharp downward momentum. As noted in the chart, the DXY has
registered new-lows. The chart analysis shown below—and the clues from the
dollar’s previous 15-year cycles—suggest that the DXY could fall sharply in the
coming months.

January 14, 2018
CHART 3: Euro – Daily and Monthly. The euro accounts for nearly 58% of the
weight in the DXY. As noted in the charts, the euro has surged to a new bull-
market high. The decisive break-out—and the dollar’s previous 15-year cycles—
suggest that the common currency could rise sharply in the coming months.

January 14, 2018
CHART 4: Gold [top]. Gold & Silver Index (XAU) vs. Gold – Weekly. As noted
in the first chart, gold may have successfully tested and re-tested the previously-
breached 2011 downtrend-line. If so, a decisive advance above $1,350 could
be followed by a large and sustained advance in the yellow metal. The lower
chart shows that the XAU-to-gold ratio appears to be in the process of breaking-
out. Further upward progress in this measure would provide a powerful clue
supporting a sharp rally in the yellow metal.

January 14, 2018
CHART 5: German Bund 10-Year Yield – Weekly [top]. DJ Europe Financials

Index vs. STOXX Europe 600 Index with Bund 10-Year Yield – Daily. As noted
in the first chart, the Bund 10-year yield appears poised to break-out from the
lengthy consolidation pattern. The relative-performance measure for Europe’s
financial stocks has broken-out sharply. Notably, this measure has traded closely
with Bund yields and the breakout suggests that German 10-year yields could
rise sharply in the coming weeks and months.

January 14, 2018
CHART 6: U.S. Treasury 10-Year Note [top]. UST 30-Year Bond – Weekly. The
price-action suggests that the downtrend in UST bonds appears likely to test
the multi-year uptrend-lines shown in the charts. As noted in the first chart, the
UST 10-year price has registered a new weekly closing-low. If the chart analysis
continues to “play-out”, the 10-year note could fall to $116 in the coming
months—down another 5.4%. And, the 30-year bond could fall to $127—down
another 15.0%.

January 14, 2018
CHART 7: SPDR Metals & Mining ETF (XME) [top]. VanEck Vectors Steel
ETF (SLX) – Weekly. We continue to be intrigued by the price-action in these
reflation markets. As discussed previously, the XME has provided important
clues regarding the prospects for the broader reflation-markets and related-
indicators. The powerful price-action suggests that global bond yields are
likely to continue to rise—possibly sharply—which could accompany further
acceleration of capital-flows into the longest-depressed markets.
13D Global Strategy & Research,

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6115, Estate Smith Bay, Box 2/Suite 333,
WWW.13D.COM
St. Thomas, USVI 00802-1304.
13D-RESEARCH@13D.COM
Telephone: (340) 775-3330 X-304.
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Trial Subscription for mwee@muirtrailco.

WHAT ARE THE

WHAT ARE THE MARKETS TELLING US?

WHAT ARE THE MARKETS TELLING US?

CHART 2: U.S. Dollar Index (DXY) – Weekly. While the September-to-

WHAT ARE THE MARKETS TELLING US?

WHAT ARE THE MARKETS TELLING US?

WHAT ARE THE MARKETS TELLING US?

CHART 5: German Bund 10-Year Yield – Weekly [top]. DJ Europe Financials

WHAT ARE THE MARKETS TELLING US?

WHAT ARE THE MARKETS TELLING US?

13D Global Strategy & Research,

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