Another Measure of Risk Taking

Yesterday we took a look at the potential strength in equity markets from the Oil to Bond ratio. This is one of many non-traditional tools to look at equity markets that which can be especially useful when there is a broad and impassioned debate about the market’s next direction from direct analysis. Another is the ratio of US Treasury Prices ($TLT) to High Yield Bonds ($JNK). This ratio directly measures the flow of funds from risk free to risky assets and so can be used as a proxy for risk acceptance, or potential exposure to equities. The weekly chart paints a strong picture for a further shift into risky assets. Take a look. The prominent spike in favor of Treasuries in marks the

tlt-jnk

depths of the financial crisis in late 2008. Since then the flow back in to risky assets gathered steam peaking in early 2011. From there the picture gets interesting. Retracing 38.2% of the move, it then bounced creating a channel between 2.89 and 3.54, that 38.2% Fibonacci. The retracements lower moving between the Fibonacci Arcs. Now building a bear flag on the support line, it has backing for a break lower from a bearish and falling Relative Strength Index (RSI). Translation: After a period of consolidation risk is about to be back on. This supports the case for a further rise in equity prices, despite the Indexes making new highs.

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Dragonfly Capital Views Performance Through December 2012 Expiry

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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.

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