Are stocks in the 9th year of a bull market? No. Not even close. I would argue we might even be in the first year. You can see some of my list of reasons outlined here in Modern Trader Magazine earlier this year. Another major component of what I consider to be a structural bull market is a relative outperformance compared with other assets. When we're looking at U.S. stocks, I think the obvious comparison is vs U.S. Treasury Bonds.

Today we're taking a look at the S&P500 ETF $SPY vs the U.S. Treasury Bonds ETF $TLT. The comparison is very simple: Stocks or Bonds? One argument I can make why we're not even through the first year of this structural bull market is because we have gone absolutely no where since 2007 relative to Treasuries. This has been a dead money trade for a decade. Late last year the ratio did break out to new highs, signaling to us that this was the beginning of a new move higher after 10 years of consolidation since that historic top in 2007, not the end:

You guys know how much I like my intermarket analysis. It's a tool that we have as market participants that simply cannot be ignored. If you're putting together a portfolio for a client, managing your own account or just looking for major trends, comparing asset classes to one another really shows where money is flowing and where it is flowing from. It would be irresponsible of us to ignore these intermarket relationships if we're trying to make money in the market and manage risk responsibly along the way.

Today, we're taking a look at one of the most important developments across the globe. We're comparing the U.S. Stock Market and the U.S. Treasury Bond Market to one another. To keep things nice and simple we'll use the most liquid exchange traded funds that represent each market: $SPY and $TLT. As you can see here, in November last year, Stocks broke out of a 9+ year base to new all-time highs. The important thing we want to reiterate here is that the breakout has held relentlessly, consolidated for half a year, and now the path of least resistance appears to be higher:

The Bond Market is a very misunderstood place. Usually all we hear are complaints. Fed this, Yellen that, something about her books being beige. I don't know. I can't keep up anymore. To me the Bond Market is place to find information that we can't get anywhere else. Even if you don't trade bonds, you must care about the direction of interest rates. But more importantly it's the intermarket implications of movements in rates that we're most concerned about. How is the next 3-6 month direction of interest rates and credit spreads going to affect stocks and commodities? WAs investors we're obviously interested in all of these things.

Let's get right into it:

There is something fishy happening in the bond market these days. Sentiment is hitting historic bearish extremes as US Interest Rates have fallen over the past month. This to me seems like a "too little too late" sort of thing from those who missed the bond sell-off that began last summer. If you recall, we had been ultra-bearish bonds (bullish rates) since the middle of the summer (see: August 3, 2016). That worked great and all of our targets were hit in the 4th quarter. Since December, we've been approaching the bond market from the long side and sentiment these days is reiterating why we would still rather err on the bullish side moving forward.

US Treasury Bonds have been a market that we've been watching very closely over the past couple of months. Remember this had been a favorite short of mine since the Summer, but all of our downside targets were hit in the 4th quarter. Since then, it has no longer been a short, and we've been waiting for it to set up to be a long for a mean reversion. Here is what is now going on this week:

I love technical analysis. I really do. There's no question that finding a nice chart brings a great amount of joy to my life. Today I want to share with you what I think is one of the most important developments to occur over the past couple of months. Interest rates have been ripping higher, yes we know this. But to me it's what is happening in Banks and Real Estate Investment Trusts that continues to grab my attention. These groups of stocks are doing the exact opposite today that they were doing at the beginning of 2016, when I was pounding the table about rates going a lot lower.

Interest rates have exploded higher into year-end from a low near 1.37% on the 10-year yield up to over 2.6%. But one of the big reasons that had me so bullish rates since July was that while the 10-year was making lower lows into the summer, the ratio between Regional Banks and REITs held the early 2015 low and started to rally:

Throughout the second half of 2016 I've remained in the camp that interest rates are going higher and that bonds are a fade. The action into 4th of July weekend originally put me in that camp and I continue to believe that, bigger picture, this is the underlying trend that we need to respect. The catalyst here, in many cases, is becoming more and more clear with each passing day. Forget the economy and the stock market, inflationary forces are moving in sync with the bond market suggesting a very high correlation between the inflation trade and higher rates.

Let's break this down using math and blatantly ignore anything the federal reserve has to say. Listening to them has been a time waster and money loser for years. I don't expect this trend to change any time soon. I'm sure they are nice people, but from a portfolio construction perspective, they offer absolutely zero value, and some might argue that listening to the fed is actually detrimental to a sound investing plan. I agree with both the latter and the former: that noise is toxic on all accounts.

You guys who have followed my work over the years know how many charts I look at on a daily and weekly basis. Believe it or not, it's probably even more than you think. Some things pique my interest more than others, of course, but it's the collective weight of the evidence that allows me to formulate a thesis given all of the available information. The specifics include price and sentiment data from stock, bond, commodity and forex markets around the world, most represented visually in chart form.

Sometimes there is a specific scenario in a given market that can impact the direction of the price of a lot of different assets around the world. Today, what I see in US Treasury Bonds is what I find to be the most interesting trade in the world. What is happening in this market? Is this a top in bonds and bottom in rates? Is this multi-decade uptrend in bonds finally coming to an end? It's hard to imagine considering you need to be older than 60 to remember a structural bear market in bonds during your wall street career.

Over the last few years, all we've heard from the financial media and economists are how we're in a "rising rate environment" and interest rates are going up. They keep averaging down on their irresponsible calls because they can. They have no skin in the game. They don't care about making money in the market. The media wants to sell ads and who knows what economists are thinking. As the great Warren Buffett said last year, "Any company who has an economist has one employee too many".

Meanwhile U.S. 30-year yields hit new lows in July proving all of their forecasts to be incorrect (shocking I know). And there is probably a good reason for that. They obsess over what the federal reserve people are saying, and blatantly ignore price action. Rather than focusing on what pays, they instead choose to focus on gossip from a group of people who never stop talking, literally.

U.S. Treasury Bonds have been a short for months (see here), but do we press these shorts or take profits? Today we're looking at what I think is an extremely powerful development over the past week:

We don't have to make things complicated guys. We don't get paid to tell stories and make up reasons for why the market is moving during the day. We are market participants. We are the 99.99% of people in the world who are just here to try and make a profit. We don't have to put together a pitch, or a sexy headline, or ask our boss for permission to do things. We just want to make a buck when the market moves. That's it.

So while all those people out there pretending to be mother goose are making up stories about the fed and inflation and all sorts of noise, we prefer to focus on price, which is literally the only thing that will ever pay anyone in this business. Today we are looking at the chart that has suggested since June that selling Treasury Bonds was the right move, and therefore interest rates would rise.

With all of the major U.S. Stock Market Indexes hitting all-time highs, I think it’s important to see if the bond market is telling a similar story. Are bonds confirming the risk appetite we’re seeing towards stocks or is there a divergence? Based on my work, bonds suggest there is plenty of risk appetite out there globally and therefore stocks should continue higher.

This week I dropped by the News Corp building to chat with Liz Claman on Fox Business. Liz simply wanted to know what we want to be buying and what we want to be selling. I think we need to be watching last year's highs in both the S&P500 and Russell3000. If prices are above those levels, it's hard to be bearish. When you ask what will drive price higher, I'm in the camp that mega-cap tech, which represents over 20% of the S&P500, will continue to be a tailwind for markets.

Here is the interview in full: