Index ETF's Roar - Macro View - Interest Rates, Commodities and the Dollar

Published on November 29, 2017 @ 7:13am

Markets had a tremendous day yesterday with all of our currently open index ETF's up on the day. TQQQ, TNA, SPXL and DDM all had good days with TNA being the big winner, up almost $3 bucks on the day for just under a 5% return.

TNA's leading performance yesterday is also pretty meaningful considering the triple leveraged ETF tracks the performance of the small cap sector, which appears to be staging another strong leg up now. That's good for the risk-on mentality, and more importantly good for the overall landscape for stocks, as we move closer and closer toward the end of the trading year.

At this point, we continue to reiterate our strong bullish stance until the markets prove otherwise, and that's likely going to take a pretty big fundamental or technical shoe to drop for that to happen.

With the economy continuing to pick up steam on the consumer confidence front, and corporate earnings continuing to suggest more forward growth, it is interesting to note treasury bonds were even finding a bid in recent days - not something one would expect with a melt-up in stocks. However, this morning's move in the bond markets proves investors are still sticking with stocks.

Provided here is a daily chart of TLT, the primary ETF tracking the 20+ treasury bonds, and a daily chart of the 30-year treasury yield. As you can see, the bond markets appear to have thrown in the towel on a short-term basis with this morning's sharp gap lower in TLT.

Further, you can see in this daily chart of the 30-year treasury yield, it's going to take a pretty significant trend reversal in interest rates for investors to start questioning how much more upside is left in stocks. Specifically, we'll need to see this key short-term retracement level hold on the 30-year yield, and more importantly a move back up above the 200-day simple moving average (yellow line).

If that ends up happening, maybe rates will start to become a bit of the media's focus. However, we're still very convinced there's no way the Fed is going to step in the way of forward economic growth with any sort of substantial rate increases in the foreseeable future.

All you have to do is look at this monthly chart of the 30-year yield dating back to 1995, and that will tell you everything you need to know - rates are likely not going anywhere too meaningful anytime soon - even if we get some token increases in 2018.

What does that spell for stocks? A perfect environment for now.

As for the dollar, it does continue to drift lower again following our bearish call weeks ago. As you can see with this daily chart of the U.S. Dollar Index, it's clearly trending lower now. Although that still hasn't provided much of a lift for commodity prices quite yet, we do believe commodities will work their way higher - assuming of course the dollar continues its trend lower.

With a somewhat building economy, increasing consumer confidence, the dollar drifting lower, and an extremely low interest rate environment, one would think there's enough of a fundamental backdrop for metals and commodities in general to move higher, but that still hasn't happened yet.

Typically, there is a historical inverse relationship between commodity prices and interest rates. The reason that interest rates and raw material prices are so closely correlated is the cost of holding inventory. When interest rates move higher, the prices of commodities tend to move lower. When interest rates move lower, commodities tend to rise in price.

That hasn't happened - not yet anyway. Maybe it's not likely to happen until the upside in equity valuations finally become a concern, because right now investors still see the best returns in stocks. Regardless, the price of commodities across the board will at some point start to base and work their way higher.

Actions To Consider Today:

Trail gains in any individual company ideas with protective stops you're comfortable with.

Hold TQQQ, TNA, SPXL and/or DDM with a protective stop at or above your initial entry price to protect gains.

Individual Company Updates:

None

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If you have any questions or would like further details regarding any of the information provided above - or anything else you're thinking about buying or selling out there - please don't hesitate to call your Rep . at 619-369-9316.