The chart below shows two ‘safe haven’ investments over the last few years: treasuries in green and the dollar in red. During periods of risk off, these positions benefited from fear as investors rushed to them for safety as they exited risky assets. But I think these two markets are sending signals that risk is the place to be right now.
The treasury market has performed remarkably well over the last few years. This past June the 30 year treasury broke the 2011 high on its way to a new cyclical low with a yield of 2.4%. However, the position has fallen back below the 2011 high after first testing that level in August. In doing so it seems to have completed a head and shoulder pattern with the neckline marked by the solid green line. Additionally, and not shown on this chart, the momentum of the security failed to get overbought and has tested oversold on multiple occasions. This is a very bearish combination.
The dollar has also performed rather well since last year and provided a nice hedge to the European crisis. However, as with the treasury market, the dollar also put a top at the end of July. And as indicated by the large red line, the dollar broke its uptrend as Bernanke unleashed Q-Infinity on its way to the most oversold reading on this position. This suggests a deluge of sellers in the dollar market and is also a bearish combination.
As these positions break down and create bearish signals, the equity and commodity markets are the beneficiaries. Barring any short term pause or
downward move, this is one more indication that the equity rise has not run its course.
Copyright: stevanovicigor / 123RF Stock Photo