[Chart of the Week] Stocks Break Out Relative to Bonds and Gold!
Also see:
No, This Is Not An 8-Year Bull Market For The S&P500 (March 21, 2017)
Small-caps Break Out To All-time highs (September 27, 2017)
I wanted to share those posts with you to help put things in perspective. But today, I think it's important to point out that although the S&P500 is up over 16% so far this year, it has done very little when compared with US Treasury Bonds and Gold. In fact, S&Ps have been in a massive range vs both of these asset classes all year. Until last month, of course.
In this chart you can see that in October the S&P500 was finally able to break out of this range it was stuck in vs Bonds and also the range it was in relative to Gold:
Notice how both of these upside resolutions were called into question last week as they were attempting to retest those important breakout levels. It appears that they have done so successfully and the path of least resistance is now higher.
So what does this mean? Well, to me it means that NO, this is not "a bubble" and NO, we're not near the end of this rally. I would argue there is a much higher likelihood that we are a lot closer to the beginning. If these ratio charts remain above their former highs from the past year, it is impossible for me to be bearish of stocks and bullish of the alternatives.
Our strategy has been very simple: Buy stocks very aggressively and sell bonds and gold. I have not been shy about expressing these views for a long time now and I see absolutely no reason to change my mind. To the contrary, all of the data coming in continues to suggest that we have been correct and has it has confirmed everything that we had already seen prior.
If we're above those former highs from the past year, we want to continue to buy stocks very aggressively and sell bonds and gold just as hard.
From a risk management standpoint, if we at some point fall below last week's lows in both of these ratios, then a reevaluation of this thesis would be warranted. In that scenario, I will be happy to change my mind and adjust the strategy accordingly if the data suggests it would be the wise thing to do. But that's not today.
Cheers,
JC
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