Checking the Oil to Bond Ratio
- Posted by Greg Harmon
- on January 17th, 2013
Crude Oil has been showing signs of strength lately. This is important if you are invested in the markets as it has been correlated to stocks lately. As a proxy for stocks, it is interesting to look at the Crude Oil to US Treasury Bond ratio for perspective on macro flows between stocks and bonds.
The chart below shows that the ratio made an aggressive move lower during the financial crisis, followed by a sharp bounce higher. Since that initial reaction the ratio has been trading in a descending wedge and most recently it is trying to break over the top of that wedge. The target on the break of the wedge higher is a move to a ratio of 1.43, 83% above the current level. That would be very bullish for Stocks as well as marking a major move from Bonds into Stocks, continuing the
recent change of perspective reported by Business Insider. There are other technical signs that support a move higher in the ratio. The Relative Strength index (RSI) is running higher and the Moving Average Convergence Divergence indicator (MACD) is positive and growing. A break of the current consolidation at 0.79 also carries a target higher on a Measured Move to 0.88. That is a significant level as a ratio at that level is then also above the 50, 100 and 200 week Simple Moving Averages (SMA). You can start leaning harder towards stocks on a break over 0.79 or if you are super conservative on a break over 0.88. There is plenty of potential upside from there.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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