What does the SPY-TLT ratio tell us?

The ratio between the SPY and the 20+ years treasury bonds ETF -TLT- can foretell of pending larger market corrections as it did in 2007, 2011, and 2015. Namely, what we can observe in those cases is that the ratio of SPY and TLT (SPY:TLT) was negatively diverging from the S&P500 ($SPX) on a large time frame (months). Why? SPY isn’t outperforming bonds anymore; (institutional) investors are moving out of (riskier) equities into (safer) bonds. TLT starts to outperform. See below.

spy-tlt

With the market making new ATHs and being in uncharted territory there’s still a lot bearishness out there as many investors haven’t jumped on the bull band wagon yet (see here), but that may quickly change.

Nonetheless, we do not observe any current long term negative divergence. All we can observe is a small divergence between now and late January; similar to December 2016. Back then all we got was a 30p (~1.5%) correction. If our Elliot Wave count of the market is correct (see here for the COMPQ), then we expect something similar (30-50p) soon, which is inline with what the SPY:TLT ratio is currently telling us.

spy-tlt-detail

One thought on “What does the SPY-TLT ratio tell us?

  1. Pingback: SPY:TLT ratio suggests a pending correction | INTELLIGENT INVESTING

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