It has been a long while since the last Amigos update because frankly if the characters, images and shticks I invent to portray market status begin to wear on me sometimes I have to believe they may do the same to you. Consider that the 3 Amigos, SPX/Gold Ratio, Long-term Yields and the Yield Curve are slow movers that we usually view from monthly chart perspectives and well, sometimes you need to take a break and just let them do their thing over time.

But with yesterday’s smash above the Continuum’s ™ limiter, the long bond’s yield has set things in motion and it is time to update all three macro indicators in detail. Many months ago we asked this following question of Amigo #2 (long-term Treasury yields).

In honor of Amigo #2 being the first one to trigger a signal, he gets to lead off our update today.

What #2 was bracing for was the first approach of the limiter (100-month exponential moving average) that had halted all advances in 30 year Treasury yields for decades. Now it is 8 months later and the yield finally cracked above the red dashed limiter. As noted in the post linked above, it has done this on several occasions over the course of the declining yields continuum. Most recently during the mini inflation hysteria and blow off of Q1 2011. Technically speaking, TYX would need to close October above the red line in order to make a positive breakout signal that it failed to do on the 4 most recent stabs above the limiter.

Why is this so important? Well, aside from the fact that rising rates on the long end would eventually impair a debt-leveraged economy rising interest rates could indicate the return of an inflation problem. If you believe that all that monetary stimulus summoned by Ben Bernanke after the last crisis has settled into the economy’s bones (as opposed to magically and harmlessly disappearing through gradual QT and Fed rate hikes) then you are planning for either a whopper of an inflation problem if the breakout is real or a whopper of a head fake into a potential deflationary liquidation if it is not.