The relationship between stocks and bonds is key to interpreting and predicting future price action. The view is that the bond market is so much larger than the stock market, that money flowing in and out of bonds causes movement in other vehicles, such as stocks.
Take a look at the following momentum chart of the QQQ versus Bonds (in the form of TLT) :
What you can see is initial peaks in the relative action cause markets to pause. The second peak – whether it’s higher or lower, tells you if momentum is shifting.
Where are we now? We’ve had our initial peak in Stocks bouncing relative to Bonds and we’re working on the second peak. We at www.stockbarometer.com expect a bearish divergence to set up the next move lower in the markets. Bonds will bounce, gold will bounce and risky assets will fall. But this action will ultimately set up the next best buying opportunity for the stock market! So stay tuned!
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