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The charts, graphs and comments in my Trading Blog represent my technical analysis and observations of a variety of world markets...
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* If the dots don't connect, gather more dots until they do...or, just follow the $$$...

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Monday, September 16, 2019

US Bond Bubble Or Equity Bubble?

Based on purely technical reasons, which I'll explain below, I'd hazard a guess that US bonds are not in a bubble. If anything, equities look more like their bubble is about to burst.

The price on the following monthly charts of US 2-yr, 5-yr, 10-yr, and 30-yr bonds is currently trading around their respective regression channel medians, after a lengthy move up over the past year off very oversold lows (around the channel -2 deviation level).

So, they're now priced around an average level, compared with historical data from 2008 (for 2 and 5-yr bonds), 2003 (for 10-yr bonds), and 2000 (for 30-yr bonds).

In contrast, the SPX is, once again, trading around the +3 deviation of a long-term uptrending regression channel taken from the 2009 lows, and is hovering just below the 3000 level, as shown on the following monthly chart.

Near-term major resistance sits at 3047.34, which is a 261.8% external Fibonacci Retracement level.

While bonds launched their latest climb from extreme channel lows, the SPX launched its climb over the past year off its channel median.

From that simple analysis, I'd say that we may see more weakness in the weeks ahead for the SPX than we'll see in bonds, although we may see volatility increase in all of them for some time due to the recent developments in Saudi Arabia and the price of oil over the weekend, about which I've written and added numerous updates as news emerges at this link.

As I mentioned in one of the updates in that post, keep an eye on the SPX:VIX ratio to gauge the level of volatility and direction of the SPX. Price on that ratio needs to hold above 200 to remain bullish...otherwise, a drop and hold below that level could send the SPX down to levels mentioned in my post of August 30. On the bottom section of the above SPX chart, the SPX:VIX ratio is shown in histogram format. It closed on Monday at 204.36.

As well the SPX will need to retake 3000 solidly if it's going to breakout and move higher into ever more extreme overbought territory (according to what the regression channel technicals are telling me).