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Intermarket Analysis: Bonds Expensive, Stocks Cheap at Trader’s Narrative

The bond market and the stock market are intimately intertwined. But how exactly they influence each other is often complex. The dynamic nature of their relationship makes it even more difficult to read the market’s tea leaves. As soon as you think you’ve figured them out, the interplay among them changes and the game starts all over again.

I’ve already described one way that I link the two together: the monthly rate of change for bonds. This is a useful indicator that has not only provided guide posts for market bottoms but also times when the market has climbed into thin air territory and is about to be humbled.

Here’s another, similar method:

10 yr bond yield weekly annual roc

As the chart above shows, this is the annual rate of change for the 10 year US Treasury Bonds. Since it is based a longer time frame, it reaches extreme levels much less frequently than the monthly rate of change.

Right now, the annual rate of change for 10 year bonds is very close to reaching the historic level that has marked a top for bonds (and a bottom for yields).

Interestingly enough, each of those times was also a good time to not only sell (or sell short bonds) but also to be long stocks:

spx 1992 present long term chart

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5 Responses to “Intermarket Analysis: Bonds Expensive, Stocks Cheap”  

  1. 1 The Black Crow


    why not pointing the dips of the Annual ROC on the first chart begin en end 2001 as a ‘buy’ for stocks ?? Those readings are close enough to the red line to be valid. As you do that, you’ll see that you can have those ‘entry points’ in a downtrend market too.

    Technical analysis can be good, but no need to fool yourself.


  2. 2 Babak

    Black Crow, do you mean to ask why I didn’t include the two signals from 2001? no real reason really - I’m just eyeballing it and they were close but not quite there. Also, the ROC didn’t cycle high enough before coming down for those signals.

    But you’re right though, both those signals would have been good buy points.

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