Stock Bond Ratio: 11/29/2016 by Woody Dorsey Publishing Since 1985
HOW THE STOCK BOND RATIO MAY UNFOLD: The recent collapse in Treasuries and the post Trump surge in Equities makes, psychological “Sense.” It represents a particular phase in the “Stock Bond Ratio.” This report is less of a market forecast than an exposition of what this Ratio means.
10 Yr. MONTHLY: The Degree of Declines in Treasuries confirms an important structural Low in Rates. Rates may rise for Decades or even Centuries! I will discuss various Timing issues but the Key is the Trend Duration relationship of Stocks to Bonds. Remember how Stocks sold off early in the year due to fears of Fed tightening! But, now that Rates are really Rising, why is the Stock Market soaring? This is another example of the pitfalls of Rationality and of how Perception and Positions “Trump” Economic ideology. There is actually a Trend Duration Ratio which fits with this seemingly strange Capital Market behavior. The timing Ratio suggests: Once Rates reach a certain phase in their Rise, Stocks do finally follow suit. It takes a certain amount of Time. In the current market situation, Treasuries are probably ready to have some sort of bounce. After that Recovery into early 2017, the next leg down in Treasuries would typically trigger a real corrective response in the Stock market. In other words, while Treasuries are due to continue lower into Q2, 2018, they may only “infect” the Stock market at certain times. The first time is in Q1, 2017.
10 YR. WEEKLY: There is no doubt that the July Highs were an historic feint and that recent declines are the kickoff to an era of higher Rates. However, what is of interest now, is how and when this Treasury decline might set off a notable Stock Market decline. Interim Timing patterns suggest that Rates are likely to put in a tactical now or near the eponymous December Rate Hike. The bounce from there will be Key.
S&P MONTHLY: Stocks have broken out from a 22 month congestion. This is technically Bullish. However, this type of thrust up, while typically exciting and often persistent, tends to eventually form an Extreme. The Big “Picture” for a High in 2018 and a Low in 2021 is not actionable now. The profile for a Correction in 2017 depends on the “Ratio.” We must wait for that.