Tapering or Papering: Gold, Crude Oil in Teen Years

TheStreet.com

NEW YORK (TheStreet) -- Friday's closes were also monthly, quarterly and semiannual closes and thus we have new longer term value levels, pivots and risky levels for U.S. Treasury yields, Comex gold, Nymex crude oil, and the euro vs. the dollar.

Four of my investment themes for the teenage years of the new millennium are that the low yield environment will continue, that the gold and crude oil bubbles will not re-inflate and that the euro vs. the dollar will remain in a trading range.

Comments by Fed Chief Ben Bernanke at his press conference following the June 19 FOMC were a game changer in my opinion. The idea that the amount of U.S. Treasuries and agency mortgage backed securities bought under QE3 and QE4 could begin a tapering process later this year set off a wave of volatility. Long term yields rose, gold prices crashed, crude oil slipped into a trading range and the dollar strengthened.

Last week several Fed officials chimed in with the call that money printing or papering would continue into 2014. This stabilized the markets setting in place trading ranges as the debate continues on tapering or papering.

Today I will evaluate the risk/reward for these markets for July and the rest of 2013. I will also provide buy-and-trade levels for trading ETFs or stocks that represents these markets. Later today I will post the effects of tapering or papering on the five major equity averages.

Here are updates for four of my themes for the teenage years of the new millennium for these markets:

The 10-Year Treasury Note Low Yield Environment Will Continue. On July 25, 2012 this yield hit a record low at 1.377%. After Bernanke's press conference on June 19 the yield on the 10-Year began to rise from 2.20% to a multi-year high at 2.667% into June 24. Bernanke set a tone that changed the perception about QE infinity. He described the conditions that would lead to the tapering of quantitative easing. As other Fed speakers opined that papering would continue, the 10-year yield declined to a test of my annual pivot at 2.476% last Friday.

The weekly chart for the yield on the 10-year Treasury (2.488%) shows that the trend of the decline in yields that began in mid-2007 became the 200-week simple moving average. This moving average trend was tested and held last week at 2.576%. My new semiannual value level is 3.227% with my annual pivot at 2.476% and annual risky level at 1.981%.

Chart Courtesy of Thomson/Reuters

A way to trade the Treasury market is via the iShares 20+ Year Treasury Bond ($110.44) which stayed above its 200-week SMA at $107.17 at last week's low at $107.76. This week's value level is $106.47 with a monthly pivot at $111.73, an annual pivot at $116.26 and an annual risky level at $120.42.

The Comex Gold Bubble Will Not Re-inflate. Comex gold futures plunged below its 200-week SMA during the week of April 20, after being above this key moving average since February 2002. Last week the precious metal tested a multi-year low at $1179.4. With this year's collapse the weekly chart for gold has become extremely oversold. Last week's close at $1,223.7 is just above this week's pivot at $1,220.5 with a new monthly pivot at $1,289.4, and my annual pivot remains at $1,599.9.

Chart Courtesy of Thomson/Reuters

One way to trade gold is the SPDR Gold Trust ($119.11). My weekly pivot is $117.76 with a monthly pivot at $124.65 and annual and quarterly risky levels at $153.45 and $154.88.

During last week's weakness for gold, Kinross Gold ($5.10) was upgraded to buy from hold according to ValuEngine. This stock has become 65.2% undervalued after trading as low as $4.53 on June 26. My new monthly value level is $4.59 with a weekly risky level at $5.82 and a new semiannual risky level at $6.23. This stock was trading at $6.48 when it was downgraded to hold from buy on June 4.

The Nymex Crude Oil Bubble Will Not Re-inflate. Crude oil continues to trade back and forth around its 200-week SMA, now at $88.80. Oil has traded around this pivotal level since mid-2009 following the bursting of the crude oil bubble. My quarterly value level is $91.75 with a weekly pivot at $95.27 and monthly risky level at $101.69.

One way to trade crude oil is the Energy Select Sector SPDR ($78.30). My quarterly value level is $68.32 with weekly and monthly risky levels at $80.66 and $81.88, and semiannual risky level at $88.35.

Chart Courtesy of Thomson/Reuters

Chart Courtesy of Thomson/Reuters

The Euro Vs. the Dollar Will Maintain a Trading Range. The euro (1.3008) is below its 200-week SMA at 1.3443. My semiannual value level is 1.2477 with monthly and annual pivots at 1.3231 and 1.3257. My annual risky level is 1.4295.

In sum, the down trend for yields remains in tact but will be challenged by the tapering or papering debate over the next several months. Remember that the purpose of quantitative easing by the Federal Reserve is to push long term Treasury yields lower. Yields are significantly higher than they were before QE3 and QE4 were announced. The rate on a 30-Year fixed rate mortgage rose by 53 basis points last week to 4.46%. My conclusion is that quantitative easing has failed its mandate.

Reckless monetary policy caused the gold bubble and the oil bubble and these bubbles have popped.

At the time of publication the author held no positions in any of the stocks mentioned.

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

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