Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Friday, August 31, 2012

Stocks vs Bonds

Stock Market Technical Analysis

Click on above image to enlarge

Tonight I would like to look at stocks and bonds comparatively.  A lot of people trade the inverse relationship of stocks vs bonds.  In the four charts above the two left side charts are a one year view of weekly bars of the Nasdaq and 20 year bond.  The right side charts are three-month charts of daily bars.  Looking back over the past year, we can see in the top left chart that when the stock market dropped big at the end of July the bonds directly below had a big run.  As the bonds were getting tired at the first of January this year and started to sell for 3-months the stock market inversely had a 3-month run up in the first three months.  On April 1st when the stock market was looking overextended and started selling down the bond market started rising again inversely.  In mid July the stock market took off for a multi week run and the bond market sold off for several weeks which comes to where we are at now where the bond market is starting to rise for its next wave up but the stock market is being fiercely propped.

When you look to the right side charts, the daily of the bonds, we see that the bonds took off on a hard run last Tuesday as the stock market above put in an ominous shooting star.  As the bonds have been climbing fast for the past week and a half, the stock market in the upper chart is being propped up.  This has happened several times in the past few years.  They are vehemently trying to defend the red 5 / green 10 EMA juncture that happened this morning.  Although the bond market is already well on its up wave, we will have to see how long the stock market can hold.  The stock market will not drop until heavy shorting comes in as the power players on the shortside fully understand the manipulation that goes on at overextended 5/10 and 5/20 junctures.  They won't risk getting crushed by a massive gap up for whatever convenient reason until the stock market gets at least a 5/10 down cross and then many will wait for a 5/20 down cross before shorting. 

Those who went into bonds last Tuesday are making good money quickly but if the PPT decides the economy cannot afford to have the stock market start a wave down here and intervenes, the bond traders will need to be nimble and ready to exit even though the bonds weekly chart in the bottom left corner is really solid.