[Chart Of The Week] Stocks vs Bonds

One of the cool new things we're doing here at All Star Charts is presenting everyone with a free Chart of the Week. This week's Chart is the S&P500 Exchange Traded Fund $SPY compared to the Long-dated U.S. Treasury Bond Exchange Traded Fund $TLT:[hide_from visible_to="public"]...

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Here we're looking at Treasury Bonds as the numerator and the S&P500 as the denominator. This ratio over the last 2 years has held the lows that it put in during the summer of 2007. This ratio bottomed out just before the U.S. Stock Market had its historic collapse. Since this ratio bottomed out on the December 31, 2013, the S&P500 is up just  13% while Treasury Bonds are up 19%. The bond ETF also pays a much higher dividend compared to the S&P500 ETF so if you want to talk about total return, Bonds have been the better place to be since the end of 2013.

I would expect this to continue to be the case going forward. With regards to risk management if you are looking to put on a trade, the line in the sand is clear. We only like this ratio if these 2007 lows continue to hold. As far as the upside is concerned, we are near the middle part of this 2-year range. If this range turns into a base and the ratio is able to hit new multi-year highs, it would signal that this is a much bigger structural move for the ratio and not just a 2 year thing. I believe that a breakout to the upside is the higher probability outcome here and bonds continue to be the better place to be.

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Tags: $SPY $TLT $TBT $SPX $ES_F

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