Thursday, May 06, 2010

Bonds vs. Stocks - Important Update




The bonds vs. stocks ratio is an important ratio to watch because it helps us determine where money is flowing out of and where money is moving into.  For quite sometime the bond market has been under performing the stock market as can be seen in the above daily chart. A falling ratio line means bonds are weaker than stocks. This trend has been in force since March of 2009  but I think this relationship is about to change in a big way.

In the above daily chart you'll notice I drew two different trendlines which clearly shows us that the downtrend has been broken.  The MACD has also turned up confirming the trend change.

In the chart below we have the weekly version of Bonds vs. Stocks and we see once again that the weekly MACD is not only showing bullish divergence, but has also crossed upwards indicating new positive momentum.

 My interpretation of these two charts is that we are witnessing a major change in trend in the bonds vs stocks ratio. In my opinion, I expect to see money continue moving into bonds and out of stocks in the weeks to come.

1 comment:

Options Trader said...

Nice chart. It looks like there is a clear dependence - ratio goes down and market goes up, ratio goes up and market declines.

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