The Race Between Semiconductors, Gold, and Cocoa Heats Up!

March 17, 2024

Weekly Market Outlook

By Geoff Bysshe


Fed Chairman Powell faces an increasingly difficult task of managing monetary policy without showing any bias towards either political party in the final months of the election year, but...

There is a much more intriguing race he must also focus on.

The inflationary race between Semiconductors, Gold, and Cocoa is heating up if not speeding out of control.

This race could be surprisingly important to you if you care about the buying power of your retirement savings!

Consider this…

If, at the turn of the millennium (Jan. 1, 2000), you were given “inside” information from the future that “Artificial Intelligence” would become a reality thanks to new developments in semiconductor technologies by the year 2025, and then asked to lock up your retirement savings in only one of the following three investment options.

What do you think you would have chosen?

  1. The Semiconductor Index. Using the “index” ensures your investment would survive over time like your other choices had…
  2. The metal that had first been used as a form of currency in 700 BC (Gold), or
  3. The seeds from the Theobroma cacao tree, which have been traded since 1500 BC and are currently used as a main ingredient in chocolate (Cocoa).

As you can see from the charts below, it’s a remarkable situation that appears to be getting more heated up with each passing week!


Don’t dismiss this situation as only applicable to well-positioned active investors skilled at managing risk.

This should grab the attention of every investor, even the most conservative, who may seemingly have no interest in trading gold, semiconductor stocks, or esoteric cocoa futures.

As you may already suspect, this week’s article isn’t just about higher prices for gold jewelry, your next purchase of a box of chocolates, or a fancy mocha latte.

It’s about a critical tipping point in interest rates that I’ve been discussing with members at MarketGauge over the last several weeks.

Long-Term Interest Rate Tipping Points

While most investors consider the level of interest rates to be the source of the “tipping points” that move stocks…

We’ve found that the velocity of interest rate changes is equally as reliable as absolute levels at identifying “tipping point” effects on other markets and trends such as stocks, gold, housing, currencies, the economy, etc.

The chart below shows how long-term interest rates, as measured by the TLT ETF, are sitting at a price level and rate of change, which historically has led to a tipping point for a significant move in both bonds and stocks.

Let’s begin with the pattern that has developed in the TLT over the last 2+ years around absolute levels.


The pattern annotated by the green arcs and dashed horizontal line at $93 is a simple technical reversal pattern with many different names.

It will likely be labeled by many as a head and shoulders bottom if it resolves itself to the upside by breaking above the impressive 6-point trend line and equally significant horizontal line at $100.

What’s not shown on this chart is that such a break higher would also take out a 200-day moving average and confirm a bullish momentum divergence pattern in our Real Motion indicator.

In short, a move over 100 in TLT could lead to a surprisingly big move higher in bonds, and LOWER in interest rates.

However, a pattern as coiled as this one has the potential to be equally as volatile if it “fails” or breaks down.

In fact, the “head and shoulders” pattern doesn’t completely exist until it moves higher, but this is a very clear inflection point pattern that we follow on any time frame at MarketGauge, and in this case…

The resolution of this pattern will likely have big implications for gold, technology stocks, the broader stock market, and, of course, interest rates.

So, to anticipate which way the pattern in TLT is likely to break, I looked into the velocity of the recent action in interest rates and a very timely and interesting leading indicator, which I've called “The DBA+DBE Inflation Index.”

The current condition of this indicator could have allowed me the creative license to title this week’s Market Outlook…

“Will A Drought In West Africa Crash What’s Left of The Magnificent 7?”

What follows is an interesting example of how and why “unsuspecting linkages and consequences” can surprise investors who don’t stay open-minded and listen to the wisdom of the crowd as shared through the patterns in the charts.

The Velocity of Change In TLT

Below, you’ll see the chart from above with an indicator added and the technical analysis of the TLT’s price levels removed to make it easier to focus on the relationship between the indicator, the TLT’s trend, and the SPY's trend.


You’ve never seen this indicator before because you won’t find this indicator anywhere else.

You do understand, however, what it’s measuring.

It helps you anticipate the direction of the stock market based on the bond market.

Let me explain.

Stocks are driven by many more factors than interest rates, but there are times when the bond market is the dominant factor.

Stocks are also incredibly good at adapting to changing levels of interest rates. This is why you can’t simply say that if interest rates reach a certain level, the stock market will have a predictable reaction. The important levels change with time and circumstances.

This indicator is not intended to pick market tops and bottoms in the stock market with pinpoint accuracy. It’s intended to tell you when the stock market will likely react to the bond market in a meaningful way.

If the histogram is red, interest rates are moving up (bonds, TLT, moving down) at a pace that is too fast and bearish for stocks.

If the histogram is green, then TLT is moving up (rates are going lower) at a pace that can be considered bullish for stocks.

IMPORTANT: During the pandemic the TLT sold off hard in response to the unprecedented infusion of liquidity into the system by the Fed and fiscal policy. The bond market interpreted this liquidity as inflationary and bearish for bonds, but the stock market roared as the liquidity, “Fed Put,” and the Fed’s “transitory” stance on inflation fueled speculation in stocks.

As a result, you’ll see a red histogram from the second half of 2020 into the first quarter of 2021.

You’ll also see that following that period, the “bounce” in the TLT in the second half of 2021 led to the extreme bullishness that created conditions that would later ignite the bear market of 2022.

It’s interesting to note that the “small” correction in TLT’s bounce at the beginning of 2021 Q4 turned the histogram red and the stock market bearish – a sign that the period of stock speculators ignoring higher rates was nearing its end.

You know how the story plays out...

The 2022 bear market was ignited by investors’ growing fear and acceptance that inflation was not as transitory as hoped and that interest rates would have to be raised “too quickly” for stocks to remain bullish.

It’s an easy story to tell, and hopefully to understand (especially in hindsight), but at MarketGauge, we prefer to have quantitative measures to guide our actions because markets can spin convincing stories…

In my webinar for our Complete Trader membership (ironically about trading with our discretionary tools), I use this slide as a reminder of the importance of seeking a quantitative justification for building a market bias…


This indicator seeks to highlight when rates are moving with the speed and duration that will impact stocks in a meaningful way.

Currently, it’s neutral.

As a result, I turned to another indicator to help anticipate which way the TLT would go next. I’ll cover that below, but…

First, let’s be clear. If the TLT rallies enough to turn this indicator green, stocks will likely continue to move higher. If bonds move lower with enough velocity to turn this histogram red, then stocks will likely sell off in a meaningful way.

If you’re curious about how this indicator is calculated…

It measures the percent change in TLT over a 4-week and 8-week period. If either of those exceeds +/- 3%, then the indicator will be green or red, respectively.

As you can see in the chart above, if you use this indicator as your directional bias and another more precise “SPY price action” trigger, it does a great job of anticipating how stocks will respond to moves in the bond market.

IMPORTANT: If you’re going to continue to track this indicator on your own, there are a few caveats like the one mentioned above regarding 2021. Another caveat (confusing signal) will potentially occur if fears of a recession arise too quickly. These are the kinds of situations we cover in our Complete Trader and discretionary trading membership programs.

If you’re interested in learning more about becoming a better active trader with professional tools and strategies like this, contact Rob here:


What’s Next For Bonds?

This question seems particularly timely considering that in the last two weeks, gold has risen significantly above a level that has defined its all-time high for effectively the last 10 years.

At the same time, tech stocks are being compared (rightly or wrongly) to the dot com days, and there’s a heated debate about the direction of inflation despite charts of the standard measures of CPI, PPI, and PCE all having charts that “peaked” in the last 6 to 12 months.

Is there another CPI, PPI, CPE, or any other “Fed” gauge, inflation peak coming?

Leaning on the wisdom of Mark Twain from above... I certainly don’t know for sure, but I also don’t think that is the most pressing question to answer if you want to know which way the stock is going to go next.

In her annual Market Outlook report at the beginning of 2024, as well as in her countless other forms of communication and analysis, Mish has insightfully warned that investors may be “looking for inflation in the wrong places.”

Along those lines, this week’s “inflation focus” with the release of the CPI and PPI struck me as too contradictory and, in too many ways, complacent to go unmentioned this weekend.

Consider this:

  • Gold is at all-time highs,
  • The commodities ETF (DBA) hit a fresh 10-year high, and
  • XLE (the energy ETF) is outperforming tech stocks for the month of March by a wide margin

Despite all that, the TLT indicator above is “neutral.”

This led me to ask two questions.

  1. What’s driving DBA higher?
  2. What will it take for DBA and Energy to move TLT?

Well, you know the answer to the first question – Cocoa, which is 20% of DBA is why DBA has exploded higher in the last week. As you can see from the chart above, it’s had quite a run recently.

The soaring cocoa prices are a result of drought conditions in West Africa exacerbating supply chain issues, and increasing demand.

Economists readily admit to discounting the reliability of “food and energy” data for predicting inflation trends because it can be so volatile.

However, having come from trading commodities, we know that they trend!

So, I decided to see if there was a simple relationship (similar in nature to the TLT Velocity indicator we discussed above) based on trends in agricultural and energy commodities that might anticipate a big move in bonds.

There is now.

I’ve dubbed it the “DBA+DBE Inflation Index.”

The idea is simple and logical. If DBA, with its agricultural commodities, is trending significantly, these costs will show up in higher consumer prices (whether the government's reports choose to count them or not).

Similarly, the energy commodities ETF (DBE) tracks items that directly impact your monthly expenses - crude oil, gasoline, heating oil, diesel, natural gas, etc.

If you focus on this indicator when it’s trending, it appears to have some real merit in anticipating the trend of bonds.

You can decide for yourself.

In the chart below, you’ll see a chart of TLT along with a calculated “DBA+DBE Index” plotted as an indicator. The actual values of DBA and DBE are plotted below in the lowest chart so if you like to see under the hood, you can. Notice how differently the indicator acts when the DBA and DBA are not in sync.

The actual calculation of the “DBA+DBE Index” indicator is simply the average price of DBA and DBE that is then inverted so that its direction will mimic the expected inverse reaction of bonds (TLT) to higher “inflation” prices.


In short, if the prices of DBA and DBE go up, the indicator will fall as you’d expect bonds to fall.

Like the TLT % change or velocity indicator above this should be looked at for big trends. To that end, the red and green vertical lines represent when the indicator crosses its 50-week moving average in a bullish (green) or bearish (red) direction. (see yellow circles)

If the DBA+DBE Index is trending above its 50-week average, it is bullish for bonds; if it’s trending below its 50-week moving average, it’s bearish for bonds.

As you can see the recent surge in DBA has pushed the indicator significantly below its 50-week average and into a bearish condition for bonds.


If DBA and DBE continue to rise, this indicator suggests that it will put pressure on bond prices.

As you know from above, if there is a substantial move down in bonds from current levels, history suggests stocks will come under significant pressure.

Next week, all eyes will be on the Fed Chair’s explanation of their latest monetary policy intentions and decisions.

While every FOMC meeting has the potential to create a substantial move in the bond market, the current market expectations are that there will not be a significant policy move.

Don’t let the media's complacency around the Fed meeting lead to you becoming complacent in the face of trending data you know many economists often dismiss.

This week's Fed meeting may be a “non event,” but bonds are coiling at a big inflection point, “food and energy” are trending, and when gold is at all-time highs it's prudent to be prepared and expect the unexpected.

Don’t let a drought in West Africa catch your tech stock portfolio by surprise.

Watch Keith's weekly video. You'll learn that there are more indications of changes in the works.

Best wishes for your trading.

Geoff Bysshe



  • Short-term vs. Mid-term Volatility (VIX/VXV) improved on a short-term basis. (+)


  • 2 out of the 4 key US indices are breaking down on their Real Motion momentum indicator, and as we’ve pointed out the 10-day moving average remains violated across all 4 key indices. (-)
  • Volume patterns are negative across the key US indices, led down by the Nasdaq which has 4 distribution days over the past two weeks. (-)
  • Speculative sectors like Semiconductors (SMH) led the market down on the week, while Risk-Off plays like Energy (XLE) and Consumer Staples (XLP) were up. (-)
  • The McClellan Oscillator went negative for both the S&P500 and the Nasdaq Composite. (-)
  • The New High / New Low Ratio flipped negative after coming off from overbought levels in both the S&P500 and the Nasdaq Composite. (-)
  • The number of stocks above key moving averages has weakened across all major timeframes and indices, especially in the Russell 2000, which shows the number of stocks above key averages being below 50% 2/3 timeframes. (-)
  • Interest Rates popped on the news of higher inflationary numbers which caused TLT and IEF (the longer part of the yield curve) to break down hard. (-)
  • Value stocks (VTV) continue to outperform Growth stocks (VUG). (-)
  • Commodities led by both Soft Commodities (DBA) and Copper (COPX) exploded to the upside with 10-year highs in DBA. (-)


  • There is a bit of a divergence within the energy space with Dirty Energy plays such as Oil (USO) up while Clean Energy (PBW) dropped. (=)
  • Risk Gauges marginally improved this week due to the weakness in bonds. (=)
  • The key feature to watch within Mish’s Modern Family is the potential blowoff in Semiconductors (SMH) that is underway, however, we would like to see the TriplePlay indicator break below its short-term moving average to confirm a further breakdown. (=)
  • More established Foreign Equities (EFA) are outperforming US Equities on a relative basis. (=)
  • Gold (GLD) sold off a bit on the week but is holding up relatively well given its recently overbought reading. (=)

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