TBT Follow Up (and More)

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The stock to bond ratio on Sentimentrader.com is showing stocks overvalued relative to bonds currently. Typically stock will back off at extremes like this. With the overall correlations, it would be likely for bonds to rally during that time. Now I do believe that we will see most bonds fall if stocks correct, but usually the US Treasuries rally as stocks correct. That correlation has been weakening of late, but not enough that I think it makes a lot of sense to bet against bonds right now.

On that note, I am going to post an exit order on the TBT trade which is inverse to bonds.

Trade Action:

Place a GTC sell limit order at 34.42 for TBT.

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The S&P 500 touched the 88.6% retracement yesterday and then reversed to form a shooting star candlestick. There was no downside follow through today, but with the time being stretched for this move, it may stick as a reversal. The gap at 1202 was not filled which leaves some upside chart headroom. Now the Dow 30 came within 10 point (a fraction of a percent) from the April high yesterday also before reversing to form a shooting star.

The gap yesterday had some characteristics of an exhaustion gap up. It was fairly large relative to the gaps in the trend, and it occurred on a notable news item (the G20 meeting announcement). So as long as Monday's highs hold, I respect it as a valid reversal.

One thing that has been missing that may be significant as a topping sign is that the OEX put/call ratio jumped to 1.51 today which is as high as it has been in a couple months. Remember that the OEX put/call ratio is typically a smart money indicator. So it usually jumps up near highs.