As we noted on November 1, a rally back toward 1,250 is well within bear market bounds. How we rally (volume, conviction, etc.) will tell us quite a bit about the odds of a more lasting upside move in stocks. We also outlined in a recent video reasons why the improvement in market breadth does not necessarily lean toward bullish outcomes. We are open to higher highs in stocks and the onset of a new bull market, we just do not have the evidence in hand to support those outcomes at this time.
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We reviewed leading ETFs from several angles last night, including volume. The interest in Treasuries (TLT) and TIPS (TIP) was high in Tuesday's session, with Treasuries getting a slight nod over TIPS. We will be watching the relative performance of TLT and TIP after today's Fed announcement.
When the ratio of Treasuries to TIPS is rising it points to (a) little concern about inflation, and (b) increasing concerns about deflation. The chart below shows what the TLT:TIP ratio looks like during a bull market in deflation fears and a bear market in stocks.
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The current TLT:TIP ratio is shown below. Notice the behavior of stocks as the bond ratio began rising in August (see points A1 and A2 below). A similar move may be occurring now (see B1 and B2). There are numerous similarities to the current TLT:TIP ratio and the ratio shown above during the 2008 phase of the last bear market: (1) the slope of the 200-day is positive, (2) the 50-day is above the 200-day, and (3) price is above the 200-day. Items 1 through 3 are characteristics of a bull market, which means we currently have a bull market in deflation fears, which is bearish for risk assets.