Euro Makes Higher Low & US Treasury Bonds Put in a Lower High

We keep seeing this Risk-On vs Risk-Off trade every day. Some people hate it and don’t even want to talk about it anymore, and others embrace it. In fact, there are two brand new Exchange Traded Notes that were designed to take advantage of such a phenomenon: $ONN & $OFF (I kid you not).

Today is obviously a Risk-On day as the US Dollar and US Treasuries are getting slaughtered while Stocks and Commodities are soaring. But quietly, something bigger is potentially happening here. With this week’s Risk-On environment, the Euro has put in a ‘Higher Low’ at the same time that Treasuries are putting in a ‘Lower High’. Let’s use $FXE and $TLT to show what is going on:

You guys know that I love charts that tell a good story. I think this shows us exactly what is happening out there. Bond traders are always the smartest right? We should always listen to the Bond market right? That’s how I was taught. But meanwhile, the currency market isn’t too far behind them.

If Treasuries can penetrate those recent highs, then this stock market is probably in trouble. This would probably happen at the same time that the Euro breaks below its recent lows. This is the key to risk management. Understand that we don’t know what is going to happen. But we can take this chart as a sign that the Euro is trying to stabilize and Market participants no longer need the safe haven of US Treasury Bonds. This is a good thing for Stocks.

I often get asked, “JC I thought you traded stocks, what do bonds and the currency market have to do with Intel?”. Well, when we’re in this Risk-On/Risk-Off trade environment, we’re trading asset classes, not PEG ratios. If you have exposure in the stock market, you have to be watching this chart above.

 

Tags: $SPY $TLT $IEF $TNX $EURSUD $FXE $INTC


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