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US Treasuries extend, gold and wheat compress

On Friday, US ten-year notes and thirty-year bonds extended at a daily scale. Here are the yield charts:

30- and 10-yearyield top extsTo put this into context, these yields have been rising since a break upward from weekly-scale compressions in early September (see first chart below, which is also of yield) and the whole bear market in Bonds began when a series of compressions in both yield and price broke at the beginning of the year. The second chart below is of bond futures prices.

30-year wkly comps

This means that a bear market is fully in progress and that we should expect these daily-scale extensions to develop at extreme moments in the down trend. They will mark ponts where the trend will pause or reverse temporarily and so offer chances to take profits and wait for a better chance to re-sell bonds and notes. If you are a short-term trader there may be counter-trend bounces that can be caught by going long hereabouts, but don't overstay your welcome. There was an earlier extension, as reported in the September 20th edition which led to a nine-day pause in the drop followed by a resumption of the bear market.

Elsewhere, Gold has made another compression, revealing that tension is building up in the trading crowd. It compressed two weeks ago, followed by an apparent break down (see the September 25th edition) but we advised waiting because of the danger of false breaks, recompressions and so on. We usually don't advise 'trading the break' for these reasons and we haven't changed our minds just because there is this new compression. Wait, but be aware that pressure is increasing.

Wheat has also compressed, as shown in the second chart below.

Gold and wheat compres

Wheat is always an interesting market, with yields rising by 1% every year and consumption by about the same, meaning that the running surplus or deficit is the difference between two large and increasing numbers. This makes for large price movements and the crop has been so-so this year which would ordinarily mean that prices should be higher than they are. Politics has intervened however and trade war rhetoric has interrupted a promising bull market. The overall supply/demand balance has been unaffected by the squabble between Presidents Trump and Xi (people are still eating everywhere) so there is some reason to think that this protectionist spat has merely postponed a rise in wheat prices. Watch out here - against our normal advice, we would 'buy the break' if prices start to rise through the highs of last week (527 1/4 in December futures).

RE

All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com