U.S. T-Bond Prices - Weekly Chart Buy Signal ?

A weekly chart buy signal was triggered in my computer-based trading system at Friday's close in the U.S. T-Bond ETF (symbol TLT, please see chart below).

How is this possible given the following:

1. The U.S. Census Bureau reported this past Friday morning that its third estimate of third-quarter U.S. gross domestic product (GDP) rose at an annual rate of +4.1%. That was sharply higher than the 2.5% growth rate for the second quarter and significantly better than the second estimate issued only two weeks ago calling for an increase of +3.6%. The Census Bureau said that the jump was due to larger personal consumption expenditures (PCE) and nonresidential fixed investment. (Normally considered bearish news for T-bond prices.)

2. The Federal Reserve announced last week that it will soon begin to scale back it's monthly purchases of Treasury securities and Mortgage-backed obligations (the infamous Taper). (Normally considered bearish news for T-Bond prices.)

3. There is a near-universal view right now that economic conditions in the U.S. and across the globe are continuing to improve, with expected lower unemployment rates, greater investment, and increased productivity. (Normally considered bearish news for T-Bond prices.)

Of course, in the world that I see, the buy signal in T-Bond prices makes perfect sense! And here's why:

1. I believe that U.S. economic growth is about to slow dramatically from the 3rd quarter pace of +4.1%.

2. The U.S. stock market is about to experience a violent correction.

3. The CBOE "Skew" Index rose above 140 for only the 4th time in history this past Friday. The Skew Index basically measures option premium levels within the S&P 500 Index for extreme out-of-the-money exercise prices. An average Skew reading is 115 according to the CBOE. Extreme readings (>140) suggest that "smart money" traders believe there may be an increased probability of a so-called "black swan" event.

4. JP Morgan is attempting to limit potential losses on its clearing of Target debit and credit cards following a major security data breach involving 40 million Target cards. JP Morgan is limiting cash withdrawals and also spending purchases. Not exactly the best timing for this sort of SNAFU.

5. For bullish stock investors, there is no "Wall of Worry" to climb now. However, this fact is NOT bullish! All the "Good" news is already priced into share prices. Any potential "Bad" news, like disappointing corporate earnings or a negative liquidity event (JP Morgan?), will be quickly met with an avalanche of selling and lower stock prices.

Bottom line: Coming into Friday, T-bond prices were oversold on a technical basis and sentiment indicators reflected too much bearishness among often-wrong trading groups. A rebound should not have been a surprise, but I was surprised none-the-less. It's not hard to imagine that T-Bond prices will continue to rebound as shorts cover and legitimate "flight-to-quality" issues present themselves over the near term. Gold/Silver mining shares continue to look extremely attractive to me, and the overall U.S. stock market (as measured by the S&P 500 Index) continues to look vulnerable to a major correction. In the interest of full disclosure, I am long Gold/Silver mining shares and short the S&P 500 in the accounts I manage.

U.S. T-Bond ETF (symbol TLT) Weekly Bar Chart with Computer-based Buy & Sell Signals

Is The "Book" Really Closed On Gold ?

Here is an interesting quote from this afternoon's Wall Street Journal "Online" Edition: 

"Gold prices slid to three-year lows [today], effectively closing the book on a historic rally that lured investors on both Wall Street and Main Street."

Almost every mainstream financial publication has a negative story this afternoon on Gold. Most point to the latest announcement by the U.S. Federal Reserve yesterday  that it will "taper" its purchases of Treasury securities and mortgage bonds from $85 billion/month to $75 billion/month.Others claim that selling pressure will persist in the Gold market because the global economic recovery is getting stronger and that 2014 will surprise on the upside in terms of global trade and related commercial growth. Still others point to several "masters of the universe" who have exited gold with heavy losses as a contributing factor to this year's slide.

The climate for gold and precious metals investment is so negative now that there is even talk of removing Eric Sprott as manager at Sprott Asset Management. Eric Sprott may be among the greatest portfolio managers of all time in the precious metals mining stocks arena, but some of his funds are down as much as 50% this year so far.

Is the "Book" really closed on Gold? As I write this column (9:30 PM CT), the near-term Gold futures contract is trading about $1193. Will it soon fall to $1100? Is $1000 the next real support in this market? Of course, gold prices could decline further to these key levels, but I just don't see this scenario unfolding anytime soon!

According to the U.S. Commodity Futures Trading Commission, the net-long position in Gold futures and options contracts is now at its lowest level since June 2007. And short positions (bearish bets) have very nearly risen to the levels witnessed in July 2013 when gold prices posted a significant short-term bottom. And global holdings of exchange-traded products backed by Gold have fallen to their lowest levels since March 2010.

And despite the fact that Gold is a "slam dunk" sell here according to analysts at Goldman Sachs, China keeps buying. China is buying gold at a rate of more than 100 metric tonnes every month now. This represents approximately half of the entire planet's annual mined output. Since gold jewelry sales account from more than 1,000 metric tonnes per year, China is effectively buying ALL the world's mined output every month.

In the interest of full disclosure, I now have about a 40% allocation to gold/silver mining shares in the portfolios that I manage. In one of them, I have hedged these long positions with short-sales in the S&P 500 Index. Yes, Long Gold Mining Shares, Short the S&P 500. Interesting position!

Bottom Line: One factor not talked about much with respect to the recent declines in gold, silver, and related precious metals mining shares is "tax loss" liquidations. Most of the shares in this unloved industry are down more than 50% this year so far, and some are down as much as 75%. Today is December 19th. The end of tax loss selling season is nearly done and conditions are ripe for a wicked short-covering rally which will then turn into a massive new bull trend. I strongly believe that Gold/Silver mining shares could easily rally 50% or more over the next 90 days. The upside spring is wound tight for Gold and Silver, and precious metals mining shares will be the star performers over the next several weeks AND for most of 2014.