From the Desk of Ian Culley @IanCulley

We have the smartest clients!

We might not always agree on the market direction at All Star Charts, but we all share that sentiment. 

Our readers ask the best questions. And I selfishly benefit every time as it forces me to clarify my thoughts into a coherent response.

As I answered an email last night, I realized I had to share it with everyone:

From the Desk of Ian Culley @IanCulley

Are investors really buying bonds, betting on a squeeze higher?

Perhaps it’s just my Twitter feed. (Or are we calling it "X" now?)

I’m perplexed by the growing chatter around picking the bottom in bonds.

Warning: Picking bottoms is never a good look.

It’s unbecoming, especially when there are zero signs of a reversal. (The same applies to tops.)

I understand the Nasdaq 100 had its best first half – like, ever.

But what does that have to do with yield charts?

Rates continue to rise worldwide.

Here’s a look at Germany, France, Portugal, and US benchmark rates:

All are steadily grinding higher following explosive advances last year. Yet none have decisively resolved to the upside from their respective multi-month ranges. 

From the Desk of Ian Culley @IanCulley

The US Dollar Index $DXY is the most important chart in the world, again.

But, honestly, when is it not?

There’s no hiding from King Dollar.

It’s true: Currencies are not considered one of the three major asset classes (bonds, stocks, and commodities).

Nevertheless, fluctuations in the US dollar impact every asset worldwide – especially stocks and commodities. 

And the probability of renewed headwinds for risk assets is increasing as the failed breakdown in the dollar could have legs…

Check out the triple-pane chart of the DXY, our G-10 currency index, and the US dollar advance-decline line:

From the Desk of Ian Culley @IanCulley

The stars have not aligned for gold bugs.

Rates and the US dollar are both catching higher – the opposite of what would likely ignite a precious metals rally.

Yet gold continues to hold above its former 2011 highs! 

Despite these setbacks, my bias remains bullish for gold.

But my desire to own the strongest assets is shifting actionable trade setups toward more profitable opportunities…

From the Desk of Ian Culley @IanCulley

It’s commodities over bonds.

In fact, we’re now in an everything-over-bonds environment as rates continue to rise. 

Looking for an uptrend?

Just place US Treasury bonds or the Japanese yen in the denominator, and voila!  

I consider the commodity-versus-bonds ratio one of if not the most important high-level intermarket ratio in our deck.

Why? Because it reveals the inflationary backdrop that colors the entire market,  determining secular leadership between asset classes and US stocks. 

And it’s hinting at the next trend in relative strength…

Check out the commodity-versus-bond ratio, as measured by the relationship between the CRB Index and 30-year Treasury bond futures:

From the Desk of Ian Culley @IanCulley

Rates are on the move again.

The US 30-year Treasury yield $TYX cleared numerous hurdles this week. 

It broke above a shelf of former highs, climbing to its highest level year-to-date. And, perhaps more importantly, it reclaimed its former 2014 high.

Add a potential failed breakdown in the US dollar index $DXY, and it’s starting to feel a lot like 2022.

But should we expect another bloodbath?

…Not necessarily.

Here’s a quick look at the US 30-year yield resolving higher from an 8-month consolidation:

From the Desk of Ian Culley @IanCulley

I find the general distaste for precious metals amusing.

It cracked me up when a close friend referred to gold as “hot garbage” at the start of the year. The Nasdaq 100 was trading almost 36% off its 2021 zenith. And gold was within striking distance of its former all-time highs.

Yet gold was trash in this investor’s eyes.

That’s information.

Information that got me thinking about a rally in precious metals…

From the Desk of Ian Culley @IanCulley

I started at the top last week, laying out my bullish energy thesis with five charts.

Energy commodities are reclaiming critical levels. They’re outperforming their alternatives. And buyers continue to support a healthy demand for crude oil distillates.

What’s not to like?

Today, I’m drilling down to individual stocks, highlighting five trade setups I didn’t cover in last Wednesday’s What the FICC episode…

And these stocks look ready to rip!

First up is oil services. I like this group of stocks because the oil services ETFs $OIH and $XES are the strongest among industry groups.

Here’s Schlumberger LTD. $SLB, the $81B behemoth:

From the Desk of Ian Culley @IanCulley

FOMC meeting?

No worry, beef curry!

The markets barely flinched after the Fed raised interest rates – again. 

Honestly, I didn’t tune in to the press conference. I prefer to focus on the tape.

So you won’t get a rundown of Jerome Powell’s forward guidance, or lack thereof, from me.

I can only relay the information provided by the market.  

Obviously, the rising-rate environment remains intact amid sustained inflationary pressures – “higher for longer.”

We can all agree on that.

The true value from Wednesday’s events resides beneath the headlines…

Investors are adjusting to a new rising-rate regime as they accept the unavoidable: inflation.

The US 10-year breakeven inflation rate is shaping up as a potential “not a top” formation:

From the Desk of Ian Culley @IanCulley

The US dollar isn’t going down without a fight.

Investors weren’t given much time to celebrate the breakdown as it quickly turned into a potential failed breakdown. 

Before we get ahead of ourselves, it could simply turn into a hard retest.

It happens all the time.

So let’s check the charts…

The US Dollar Index $DXY is trading back above a critical shelf of former lows:

As long as it’s above that level – let’s call it 101 – the odds of a failed move increase.

On the other hand, price could chop sideways for longer than anyone cares to believe.

From the Desk of Ian Culley @IanCulley

Here comes the Fed.

Another FOMC decision is upon us.

But the market has the central bank’s number this time, or so it seems.

The fed fund futures are pricing in an almost certain chance we’ll see a 25-basis-point rate hike come Wednesday.

With general consensus running at all-time highs, the focus will shift toward Jerome Powell’s words, basically the Fed’s forward guidance.

I won’t tune in to that press conference.

What I will do is monitor price.

When it comes to precious metals I’m following absolute trends, as usual, but I’m also tracking these two critical relative trends…

From the Desk of Ian Culley @IanCulley

Investors hate commodities – especially energy. 

I don’t blame them. 

Most energy stocks and commodities have failed to provide the best opportunities for the average market participant.

In fact, they’ve been an absolute dumpster fire compared to high-flying tech names for almost a decade. 

But everything changed following the 2020 sell-off.

Commodities flipped the script, outperforming bonds and stocks. Long-forgotten energy names worked their way back in the conversation as the energy sector taught a masterclass in relative strength.

This story isn’t finished – not yet!

One glance at the market’s year-to-date performance reveals an explosive tech rally that’s managed to erase the past two years from our collective memory.