Signs of the times.

Today we see two early signs of coming economic developments: 1. a drop in the Stock Market and 2. the start of inflation. The signs of a drop in the Stock Market is shown by the price/volume non-confirmation. This occurs when the DOW advances in price, but volume is dropping. So, the volume is not confirming the increase in price, which signals a coming price drop.

The second trend spotter is the price of the 30-year and 20-year Treasury bill price. I have already analysed the 30-year T-bill and noted the head and shoulders (an indicator of coming price drop). This time, we can look at the 20-year T-bill and analyse it carefully. This graph also shows a mini head and shoulder, forecasting a drop in prices. There are a number of other features of this graph which are also important. These bills (which are actually bonds) have coupons attached to them which pay a flat price every year. When inflation threatens, the price of the t-bill falls, because the fixed return will be less valuable. Note that in July 2008, when rising oil prices threatened inflation, the 300 DMA and the 50 DMA had kissed as people were expecting inflation. As the financial system unraveled in the Fall of 2008, the 50DMA skyrocketed, because t-bills were considered the only safe investment. As the panic receded, t-bills began to drop in value. The 50 DMA actually fell below the 300 DMA in May of '09, signaling a long-term bear market in treasuries. An interim low of 85 on this scale was reached in June, followed by a recovery and a support level at 87.6. TLT has hit this level 3 times and is heading for it again. The significance of that is that when a market keeps bumping a price repeatedly, it will eventually break through. When it does, a further drop will follow.

Other numbers to watch is the gold price (currently in the low 1100) and the value of the dollar. As inflation takes hold, oil prices rise (it is at $82/bbl already) and the value of paper currencies will drop in relation to gold. The price of gold will be affected by deflation/inflation.