Bonds vs Stocks: A Gloomy Macro Picture is Unfolding ProShares UltraShort Lehman 20+ Yr(ETF) (NYSEARCA:TBT)

Somebody is sensing that there is a problem out there, but not stock market investors.  Our combined market analysis, which is a technically driven observation of the DJIA, NASDAQ, S&P 500, and Russell 2000, tells us that the DJIA is set to test all time highs again, and that certainly does not demonstrate the concerns that the bond market certainly seems to be portending.

Last week the long term US Treasury Bond came within a point of a 52 week high, demonstrated by the strength in iShares Barclays 20+ Yr Treas.Bond (ETF) (NASDAQ:TLT), and although the market itself looked weaker back then than it does today, bonds are currently priced at levels we saw back in January and February when the stock market was much lower.

Sign Up for Free Trial

Bond investors seem to be saying that macroeconomic risks, those that are longer term in nature, have not gone away even though the stock market itself has bounced back from those early year lows. 

However, both of these pools of investors, stock market and bond market investors could be right without either being wrong.   Stock Market investors and traders often have shorter term time horizons in mind, while bond investors are almost always doing extensive research for the long haul, so what we are seeing out there may actually be a combined point of view that offers foresight.

If the Stock Market increases as our combined market analysis suggests ProShares UltraShort Lehman 20+ Yr(ETF) (NYSEARCA:TBT), which recently came within a point of an all time low, could claw back towards $40.  That does not sound like a big move to stock market investors, it is less than 10% from where TBT was priced when this article was written, but that translates into a 5% drop in bond prices.

However, if TBT follows the stock market higher and presses $40 again it would probably be coupled with changing technical patterns from our combined market analysis too, changes that might reflect tests of all time highs in the DJIA, and that would tell stock market investors to turn sides.

While the bond market clearly tells us that macroeconomic risks still exist, and we would agree given what The Investment Rate says, the stock market is pressing higher, which also happens to be supported by our technical observations, but the technicals also tell us that there is an upside limit to stocks.

Therein lays the groundwork for both bond market and stock market investors to be right.  With a shorter-term outlook and a stock market that technically looks like it has slightly higher to go, stock market investors may be right in their upside projections over the near term, but they can also easily turn from positive to negative, that is the nature of stock market investors who often forget fast and often turn from bullish to bearish on a dime, so if upon the resurfacing of technical red flags in our combined market analysis stock market investors do turn bearish again they will be on the same side as bond market investors, and through the oscillations the bond market will have maintained it's clear warning.  Something is not right on a macroeconomic basis, according to the bond market, and although the stock market does not show it today, it almost surely will.