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XME vs 10-Year Treasury Yield


We can make the technical argument that not only has the SPDR S&P Metals & Mining ETF (XME) developed a multi-year base formation, since late 2011, it also has tracked the basing formation carved-out by U.S. 10-year Yield, suggesting that the XME and its underlying components have been extremely sensitive to longer-term interest rates and Fed interest-rate policy.

Only during the most recent 5 weeks do we see budding evidence of a positive divergence between the Metals & Mining Sectors on one hand, and 10-year Yield on the other (see shaded area of chart).

The XME is testing its 2014 highs, whereas Yield is nearly 50 bps beneath its December 31, 2013 high at 3.04%, which suggests either that economic fundamentals are improving, or perceived to be so, or, the longer-term rates (Fed Policy) is falling further behind "the curve," or both.

That said, however, XME must climb and sustain above 43.42 to confirm an upside breakout that points next to 48-50.

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