The sell off in markets accelerated by coronavirus and the global reaction to curtail the pandemic has left no prisoners, as nearly all asset classes are selling off in a flight to liquidity. As large institutions face margin calls, they are forced to close positions or raise cash by selling anything and everything that is liquid. Gold and silver – the “safe haven” assets – are no exception. I would remind readers that in the global financial crisis gold fell 27% and silver fell 55% in nominal terms. Gold outperformed equities on a relative basis, but silver actually underperformed.
Fear or Greed?
The last two weeks have been extremely volatile in the markets, and for the first time in a long time my friends and family have called to inquire about “what is going on in the markets?” Coronavirus contagion fears, coinciding with all-time highs in the markets, has been the scapegoat for a rapid, deflationary decline across nearly all markets except bonds, which resiliently continued to fetch a bid. Even the US Dollar, traditionally a safe haven in deflationary swoons, declined.
A-B-C Correction At Key Level
After a brief hiatus from posting, I am just now getting back into the swing of things. On a personal note, my wife and I moved the family cross country from Texas to Idaho this past month, and that is an adventure I hope to never again repeat! But life is settling down a bit now . . .
The bond market is a good place to dust off the charts. I closely follow the iShares 20-Year Treasury Bond ETF, $TLT, and my analysis continues to confirm the the correct application of the Fibonacci levels should begin with the secondary high from the 2016 peak, not the primary high. I share some prior thoughts here.
In doing so, we see $TLT honoring multiple Fibonacci levels of support and resistance throughout the last three years.
The breakout from the secondary high occurred in August and failed to close above the 1.236 Fibonacci extension. It has since had an A-B-C correction and is retesting the break of that secondary high, which also coincides with rising channel support. The move from here will dictate the direction for the next few weeks/month. If support does not hold we should expect a retest of 134.50. Otherwise, a move back towards 150 seems very likely. My bias is to the bullish side.
A more granular look on the daily chart from the September high shows a measured move higher, with price retracing to the .618 level, pulling back to .382, pushing higher to .786, and now sitting at .236 (higher low from the September bottom).
Lastly, for anyone interested in learning more about how to apply Fibonacci levels, please join me this Sunday, October 13th, 2019 at 6pm EST for a webinar with my friends at Trendspider. A link to the webinar is here.
Flight to safety
Since 2015, the gold market and bond market (I use the $TLT 20-Year Bond ETF as a proxy for bond market performance) has been highly correlated. Both asset classes are viewed as a risk-off flight to safety. While past performance does not predict future performance, it is worth noting that many are viewing the bond market as a “bubble,” while simultaneously extolling the opinion that gold has entered a long-term secular bull market. I am personally allowing for the possibility that both have much higher long term upside, particularly when considering that US bonds offer the highest yields in the world. The best yielding sovereign bonds should continue to fetch a global bid. (more…)