This Chart Suggests Buying Bonds and Selling Stocks

Last week I posted a chart without any labels on it so that we can focus on price, and ignore any biases we may have had. I received a lot of great feedback and commentary that mostly revolved around buying this particular chart as long as it remained above those 2007 lows.

As you can see here, this was actually a ratio chart with US Treasury Bonds as the numerator and S&P500 as  the denominator:

It looks to me like this is still a good risk/reward that favors bonds over stocks. Further confirmation would come after a breakout above this red downtrend line. So far this has been a great year for bonds, but not so much for stocks. I think this trend persists as the extreme bearish sentiment from late last year continues its epic unwind.

I really find value in flipping charts upside down, eliminating labels, and figuring out ways to make both bullish and bearish arguments for various positions we have on or are looking to put on. If you're only taking one side on a consistent basis, I think you're only lying to yourself. It's about keeping an open mind and not taking what you think too seriously.

The market is going to do whatever it wants no matter how much homework you've done or think that you've done. So I think it's in our best interest to always question what we're thinking or doing. As the data changes, making adjustments to our outlook is something that we pride ourselves on. But so far in 2014, the price action just continues to confirm what we believed coming into the year. As soon as something is different, we'll adjust.

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Tags: $SPY $TLT $ZB_F $TNX $TYX $IEF $ES_F $ZN_F $SPX