U.S. Treasury bonds often tell a person whether he or she should be invested in the stock market. For example, if 10-year U.S. bonds are being sold for an interest rate of less than 2%, then it probably means that people don't think inflation is a problem or they have no confidence in the stock market. They are willing to take a low interest payment because they fear a stock market crash, and they believe that U.S. bonds are safe.
Another interesting thing about 10-year bonds is to compare IEF, the 7-10 year bond exchange traded fund with SSO, the leveraged S&P 500 ETF. If the chart of IEF compared to SSO shows the price line of SSO above IEF, then stocks are being valued more than bonds. Ideally, you want to buy stocks when the SSO line is crossing IEF from below because it demonstrates a momentum in stocks that may last at least a couple of months.
Another point is to take a look at the highlighted green areas below. These are points when the stock market was being favored over bonds. It could be a stock market top as it was in April of 2012. Stocks as measured by the S&P 500 fell 10% in May of 2012. On the other hand, the yellow highlight areas mark stock market bottoms. June of 2012 started an unusual summer rally due to election year politics and European bond buying.
As of November 2012, I have expanded the table below to include important trends in stock market indicators. The S&P 100 bullish percent index
has been added because the numbers from it can show an uptrend or downtrend in the market. The same is true of BPNYA,
the NYSE bullish percent index. If these two indexes are going down, then stocks will be going down. A third indicator is UDOW
, the leveraged Dow stocks ETF. I have also included UDOW's relative strength index (RSI) and MACD trend. UDOW will be a great stock to own whenever the market is trending upward.
The week that closed November 16th contained signals that the stock market downtrend was over. Bond interest was low, the S&P 100 was less than 50, and UDOW's RSI and MACD had turned upward. The fall season downturn was not as severe as the May selloff, and it was time to sell short stocks and go long. Also, the President and Congress showed a willingness to cooperate in solving the nation's budget issues.
For the week ending June 21, 2013, we had a tremendous paradigm shift in bond prices and interest. It used to be that the stock market operated between the ten-year bond interest rates of around 1.60 and 2.00. Now, we have a full-blown exodus from the bond market to stocks, but that does not mean it will be smooth sailing for stocks. The stock market will probably advance slowly now, but we will still have pullbacks from time to time.
As of June 28, 2013, I will only be documenting the table below on an intermittent basis because the weekly table was getting too long. I will try to record new data when there is an overwhelming change that needs to be recorded in relation to stocks. Viewing the statistics on a paradigm shift basis will also show bigger changes in the values. Trends will be more clear in this way. Also, the RSI (**) and MACD for UDOW have been discontinued since a snapshot of those indicators would not be significant compared to weekly tracking.