Global Macro: Oh, Bearish Canada

TheStreet.com

NEW YORK (TheStreet) -- Although Canadian equities have raced to yearly highs recently on lower Treasury rates, they are bound to break lower on falling commodities and on the prospect of higher rates in the U.S. in anticipation of monetary tightening by the Federal Reserve.

The chart below is of iShares MSCI Canada Index . The issue is that the long-dated Treasury bond is still in a strong downtrend. This movement will pressure commodities, such as gold, and strengthen the dollar. Gold miners correlate heavily with Canadian equities, and over the past few days, gold miners have sold off.

Canada will need a major catalyst to break above current overhanging resistance levels. The overall sentiment seems to be bearish for Canadian stocks.

The next chart is of the iShares Barclays 20+ Year Treasury Bond . As the Fed has hinted at reining in monetary stimulus as soon as September, long-dated Treasuries have sold off.

Uncertainty arose in early July whether economic data justified an early end to easing, but the market seems to be coming to terms with the idea that economic data are strong enough.

Long-dated Treasuries have recently corrected to test their trend line, but have been swiftly pushed lower over the past few trading sessions. In essence, a continued bearish outlook on Treasuries reiterates the idea that rates are going higher.

The last chart is of PowerShares DB Commodity Index Tracking . Commodities have pushed higher as the long-dated Treasury bond has corrected upward and the U.S dollar has fallen in stride.

Commodities, however, seem to have hit a wall of overhead resistance and rolled over to the downside.

Similar to the charts above, all three assets appear to be tired of testing resistance levels and are now on the verge of a breakout lower. Look for these three assets to continue to move together the next few weeks. If any one of them shows leadership, it is reasonable to believe the others will follow.

Good luck trading the macro environment.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

EXCLUSIVE OFFER: See inside Jim Cramer’s multi-million dollar charitable trust portfolio to see the stocks he thinks could be potentially HUGE winners. Click here to see his holdings for FREE.

View Comments (0)