Double Top, Back at 2007 Levels? Risk-off Time Again?

07/09/2015 7:00 am EST

Focus: STOCKS


Chris Kimble, of Kimble Charting Solutions, takes a technical look at the charts of the Stock/Bond ratio and the S&P 500 over the past ten years and shares his outlook for when it might pay to be overweight bonds and underweight stocks once again.

This chart looks at the Stock/Bond ratio over the past 10 years.


chart
Click to Enlarge

As you can see, the ratio hit all time highs back in 2007, and once it turned lower and broke support line (1), the trade was to be overweight bonds and underweight stocks.

In 2009, the ratio was very low and turned up and the trade for the next few years was to be overweight stocks and underweight bonds.

Now the ratio is back to 2007 levels. Is a double top in the ratio in play?

chart
Click to Enlarge

This chart reflects that the S&P 500 has been struggling at its Fibonacci 161% Extension level.
It has broken below support line (1), that is based upon weekly closing prices. Now line (2) is being tested above, which is based upon weekly lows, coming off the 2009 and 2014 lows.

If the ratio would happen to break support line (2) in the top chart and the S&P 500 breaks support line (2) above, sellers could step forward and it could pay to be overweight bonds and underweight stocks again.

By Chris Kimble, Founder, Kimble Charting Solutions

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