Language

Multilingual content from IBKR

Close Navigation
Learn more about IBKR accounts

Chart Advisor: Stocks Extend Lead Over Bonds

Posted September 29, 2023 at 7:43 am
Investopedia

By David Rath, CFA, CMT

1/ SPY vs TLT Continues Climb

2/ High Beta vs Low Vol Struggles to Break Through

3/ Discretionary vs Staples Turning Lower?

Investopedia is partnering with CMT Association on this newsletter.  The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services.

1/ SPY vs TLT Continues Climb

There are a few ways to define the push and pull between stocks and bonds. One such relationship is between the SPDR S&P 500 ETF (SPY) and the iShares 20+ Year Treasury ETF (TLT). We talked about the breakdown in absolute terms on the TLT chart a couple of days ago, but this ratio chart shows how pronounced the outperformance of stocks has been over the last few years.

I saw quite a few people calling for bonds over stocks at the beginning of this year and for good reason. The economic outlook was bleak and people were predicting 100% chance of recession. I wanted to see a meaningful breakdown of this upward channel before picking sides. The last couple of months, it’s been a case of stocks losing less as the ratio rides the upper bound of the channel. One thing to keep an eye on: the stark divergence in RSI that is currently forming. Mean reversion is a powerful force.

2/ High Beta vs Low Vol Struggles to Break Through

The relationship between high beta (SPHB) and low volatility (SPLV) stocks is one way to ascertain market participants’ comfort with risk. We saw the ratio skyrocket from the COVID abyss to peak around March 2021. Since that peak, there have been three distinct attempts for the ratio to break above its resistance zone. Each time the ceiling has sent the pair back down to regroup.

It’s been said that the more times a level gets tested, the more likely it is to get broken. Let’s see if it gets another crack at it.

3/ Discretionary vs Staples Turning Lower?

Another such ratio to take the market’s temperature is the ratio between consumer discretionary stocks (XLY) and consumer staples (XLP). Some would argue using the equal-weighted version of the two sectors due to Amazon (AMZN) and Tesla (TSLA) occupying such a large weight in XLY, but the charts are similar.

On the backs of a resilient consumer, we have seen this ratio lead the charge from the end of 2022, carrying the broad market with it. After breaking through resistance and then retesting what then became support, the ratio looks like it might be running out of steam. A bearish RSI divergence has formed and confirmation by dropping below support would likely change the character of this market.

Originally posted 29th September 2023

Join The Conversation

If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.

Leave a Reply

Disclosure: Investopedia

Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy.  While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: ETFs

Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

IBKR Campus Newsletters

This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.