I may expect a few bad trading days. I may even believe that we are likely to see a modest pullback of 3%-4% in U.S. equities before Santa reinvigorates the rally. Nevertheless, a variety of indicators are foreshadowing danger – the same coal mine canaries that preceded the September-October sell-off.
For example, high yield corporate bonds (a.k.a. “junk”) are being cremated again. Take a look at the 7-10 Year Treasury (IEF):iShares High Yield Corporate (HYG) price ratio in the chart below. If you thought that widening credit spreads were a bad sign a few months earlier, then you should be equally concerned about the issue today.
Now get a gander at one of the world’s most talked about precious metals: gold. U.S. dollar bulls and commodity bears alike had declared gold dead this past November. Many stated that once gold had dropped from $1200 per ounce to the $1150 level, it was only a matter of weeks before we would see $1000 per ounce.
It is not that exchange-traded vehicles like SPDR Gold Trust (GLD) are proving their mettle as a hedge against global currency devaluation. On the flip side, spot gold is back above $1200 per ounce and GLD is well above a 50-day trendline. Both tend to suggest that near-term fear about stock assets is present.