Tuesday, August 13, 2013

Connecting the Dots - 08/13/2013

Although the 10 year note opened higher Monday and has reversed course lower coming into the Tuesday session - we still find merit in the 2004 policy comparative which points to a tailwind for the balance of the year in bonds. 

As much as we agree with the wisdom of higher rates ad infinitum from the elders of the punctilious bond tribe, we still respect the considerable expression of time in the bond market which points to a destiny of ~ 1% for 10 year yields and a troughing rate environment for the foreseeable future. 
Quite similar to what the 2004 comparative pointed towards, gold broke higher over the past few sessions. It wouldn't surprise us to see gold consolidate across the short term before continuing on its way higher through August.  
While the gold and emerging market charts have been fit to the congruences of the 10 year yield comparative, we moved forward a few sessions the VIX and SPX charts which if the current market continues to follow may point towards a squall of turbulence on the horizon in the equity markets.  
As we pointed out in previous notes, although the SPX has run across the consolidation trend encountered in 2004, the market has followed the momentum pattern which saw four sequentially stronger corrections before breaking higher in the fourth quarter. 

Should momentum unfurl in the equity markets similar to 2004, the SPX will begin its final correction soon - likely in the back half of this week. 
The Shanaghai Composite took its time in carving out a tradable low, but appears to be taking the spotlight and performance torch from the U.S.