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Each week, GoNoGo Charts subscribers receive a chart pack that provides a view of the trends across asset classes. Launch Conditions is designed to help readers maintain awareness of the longer-term landscape, no matter what their holding period or preferred asset class may be. At the close of each month, we provide a second edition of Launch Conditions for an even more expanded view of the long-term performance of various assets and indices.

Click into the chart packs below to give yourself context for how you want to be positioned going into 2021.

Panel 1 – Global stocks continue in the “Go” trend now in place for several weeks.  $DGT tracks an equal-weighted index of 150 of the world’s most prominent companies as selected by Dow Jones.

Panel 2 – Government bonds, continue to paint “NoGo” bars, although they show weaker directional trend strength on pink bands. $IEF tracks a market-value-weighted index of debt issued by the US Treasury with 7-10 years to maturity remaining.

Panel 3 – Commodities are a “Go” continuing to paint strong blue bars.  $USCI tracks an equal-weighted index of 14 commodity futures contracts and holds at least one precious metal, industrial metal, energy, livestock, soft, and grain commodity.

Panel 4 – The US Dollar is now again in a persistent “NoGo” trend. $DXY is an index of the value of the United States Dollar relative to a basket of foreign currencies.

Panel 5 – Bitcoin continues in a “Go” trend and we saw continued strength this week as price climbed daily to new all-time highs.

Gains have been more tempered over the last several weeks though and we will look for support at the lower bound of the upward sloping trend channel. Technical analysis literature tells us that as support is tested, GoNoGo Oscillator’s interaction with the zero line will confirm or diverge from the price trend. The dance between the two indicators affords an early signal of whether the trend will continue each time.

Interestingly, the bulls and the bears have been wrestling over the past month as sellers are driving prices lower (reflected in the chart below of $IEF by lower highs) and yet buyers are back-stopping the selloff  (reflected in the chart by higher lows).  During this potential basing of price action, GoNoGo Oscillator has consistently been holding the zero line. Until that coiling of momentum breaks out, we patiently await the outcome.

The most recent daily closing price bar appears to challenge the downward sloping trendline of lower highs.  If the GoNoGo Oscillator is able to break sharply into positive territory, we could begin to make the case for a base in Treasuries and have a realistic discussion about the markets shifting back to defensive assets. For now, we want to find high performing opportunities elsewhere.

As we are dedicating much of this issue of Flight Path to spotting risk on the horizon, there are a few elements suggesting $USCI may be a bit overextended. The “Go” trend has steepened in recent weeks on heavy volume – reflected by the dark blue color of the oscillator.  The concept of polarity suggests that the upward sloping trend line that used to be resistance, will now act as support for prices of $USCI.  As price moves further away from this support line, we have a higher risk assessment for this security. These are not suggestions that the trend is weakened, but merely that adding capital to this position now has a lower risk-reward ratio.

In addition, we have highlighted a very slight oscillator divergence in the lower panel. If price corrects in the short-term as traders take profits from recent gains, we would look for the oscillator to fall to zero as price approaches trend-line support. If the oscillator is then supported by the zero-line, we would potentially receive another low-risk entry icon and have a great opportunity to add to the position.

If the bull market in equities were threatened, we would see investors raising cash, and demand for US Dollars driving the $DXY higher. This “NoGo” trend is firmly in place, but we have highlighted a few elements to watch as early warning signs. The bullish divergence between price and the GoNoGo Oscillator highlights that price made a lower low as the oscillator set a higher low. Subsequently, we would look to see GoNoGo Oscillator test the zero-line from below. The most likely outcome is that the oscillator will be turned away at zero, leading to further price declines. If GoNoGo Oscillator were able to break into positive territory, then we would watch price closely for confirmation of upward trending price action. Given the weight of the evidence, there are many contradictions of this current chart needed for $DXY to escape the quagmires of its “NoGo” trend.

Below is the weekly GoNoGo Chart of $IAU, the Ishares Gold Trust ETF.  As you can see, there was a strong counter-trend correction in the last quarter of 2020. GoNoGo Oscillator even failed to find support at the zero-line as the signs of weakness stacked up against this “Go” trend.

However, in recent weeks price is climbing to make its first foray outside of the downward sloping trend channel that we were able to draw from the high this past summer. For those worried about inflation, or those looking to capture short-term performance in gold, we would like to see the oscillator break back into positive territory to confirm this price action.

There is another indication that this breakout may be more powerful than the short-lived “Go” that was flagged in November.  GoNoGo Oscillator quickly retested the zero-line after breaking out to positive territory and this time, the oscillator found support.

The “Go” trend pictured in the chart below sustained a price move from just under $11,000 to nearly $35,000.  Along the way, GoNoGo Oscillator remained above the zero-line as it should when a trend is healthy.  The consolidation we saw in late November and early December gave investors an opportunity to enter this trade (or increase the position) in the form of green low-risk entry icons.

At the time of writing this research, price had rocketed away again, with the GoNoGo Oscillator sustaining very positive readings on heavy volume.  Now that investors are taking profits, we will look for GoNoGo Oscillator to find support at the zero line for the trend to continue.