The Stock Bond Ratio can often tell us a lot about asset allocation in the markets.  A reader recently asked me to update a post I wrote at See It Market in 2014.  Let’s take a look.

Let’s start with the NASDAQ Composite relative to Long Term Treasuries.

naz bonds

This ratio has formed a broadening top and has formed lower highs and lower lows since last summer.  The trend is lower for now, suggesting caution.

The story is the same for the S&P 500 relative to long term treasuries.  We’re seeing lower highs and lows after rolling over at long term resistance.  Until that changes, treasuries are preferred.

spx usb

The chart that is THE most important in the market right now is the S&P 500 relative to the 10 Year Treasury Note.

The pair has formed what appears to be a major rounding top pattern.  It also quickly reclaimed key support from Februaries panic.

How this plays out this summer will determine asset allocation for the coming years.  If this formation can break higher like in early 2013, we could see another monster bull market run develop.

stk bnd

We just don’t know how these will play out, but the trend of lower highs and lower lows must end for stock market bulls to get excited about meaningful inflows from bond funds.

Thanks for reading!