Chart of the Day – SPY vs. TLT in a time of QE

by Enis October 23, 2012 2:22 pm • Commentary

Here’s a preview of what I’ll be discussing on Talking Numbers today around 3:40 pm EST on CNBC:

As we approach the end of 2012, the natural question for any long-term allocator is:  overweight stocks or bonds right now?  I’ve mentioned evidence that makes me think the market has made a significant top, but here’s another look at trends in SPY and TLT.

The first chart shows the 3 year performance of the SPY ETF:



I’ve drawn 3 green trend lines to signify the QE2, Operation Twist, and QE3 rallies that we’ve seen over that period.  Each time that trend was broken, that was essentially the end of the short-term stock stimulus from that round of central bank action.  This week’s move lower has convincingly broken the QE3 uptrend in place since June.  Combine that with a very weak earnings season, and we have a dangerous technical setup here.


On the 3 year chart of TLT, I’ve drawn the red downtrends during each new central bank program:



The current downtrend has not been convincingly broken to the downside, but if stocks are any guide (as they have generally preceded the bond breakout the past couple times), then we are likely to see the safe haven bid to bonds return in short order.