Recent Inflation Will Abate
- Posted by Greg Harmon
- on February 27th, 2014
That is what the Bond Market is saying. The chart below shows the the CRB Index (an inflation measure) with the Treasury Inflation Protected Bonds ($TIP) as the blue area. The TIP’s are the Bond market equivalent of a measure of inflation as they adjust to protect holders from losing value due to changes in inflation. These bonds have been right before too. Looking at point A as the CRB Index started to fall so did the TIP’s, indicating inflation would be lower. At point B the TIP’s refused to follow the CRB Index higher and it did fall back. Now with the spike from the middle of January TIP’s are refusing to follow again. And over the last week the CRB has consolidated, printing a Shooting Star reversal candle in the middle of the consolidation. Momentum is waning as well with the Relative Strength Index (RSI) hitting 80 and leveling.
Knowing where inflation is headed is important for equity traders as controlling it is part of the Federal Reserve’s dual mandate. And with the primary focus being on how fast the taper will continue we got a clue from the Federal Reserve during this rise in the CRB as to where we should focus our attention. The Fed uses a totally different measure, the Core PCE, but as it does not print daily we need a proxy. Their concerns about inflation seem much more inline with TIP’s than the CRB.
Want to learn more about Dragonfly Capital Views?
Dragonfly Capital Views Performance Through February 2014 Expiry and sign up here for the free 7 day trial before you pay.
Get my book, Trading Options: Using Technical Analysis to Design Winning Options Trades from Amazon.
If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
- Macro Week in Review/Preview March 24, 2017
- How This Week’s Top 10 Performed, March 24, 2017
- The Pitchforks are Out
- Premium Earnings 3-23-17: KB Home and Micron Technology
- More Upside for Gold… Against the Euro
- Premium Earnings 3-22-17: PVH and Accenture
- Copper is Coiled for a Move
- Premium Earnings 3-21-17: Fedex and Nike
- Does the Stock to Bond Allocation Need a New Catalyst?
- Premium Earnings 3-20-17: General Mills and Lennar
Dragonfly Capital Updates