Stock-to-Bond Ratio Testing Important Price Support
It’s important for investors to follow stocks and bonds. And even more important to understand the relationship between them.
Today, we highlight the past 20-years of there relationship via the S&P 500 Index to iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) price ratio.
In general, the stock market is doing well when stocks out-perform bonds (ratio heading higher) and worse when bonds are stronger (ratio heading lower).
The chart above is a long-term “monthly” chart of this ratio. Here we can see that the Stock/Bond ratio has been in a broad up-trend for 20 years, and a very sharp and narrow up-trend for the past 4 years.
But, the ratio is currently testing important price support within its narrow up-trend, and support is support until broken.
And with RSI posting its highest levels in 20 years, this support test becomes more important.
Should this ratio break down, we will likely see a deeper stock market correction. Stay tuned in the month(s) ahead.
