4/20 Morningline: Stocks and Bonds

On your chart for SPY, the exchange traded fund that tracks the S&P 500, draw a horizontal line at $119, and another at $121.30. Between those lines, only about 2% apart, you will have bound nearly all the price movement of blue-chip stocks for seven trading days.

	trend	adx	psar	pps	macd	macd trend	sto	sto trend
SPY $120.50
VIX 16.48
TLT $89.82

At 9:57 a.m. Eastern

The Treasury long-term bonds, TLT, the other fundamental leg of the markets, has also been tightly bound, within a range of about 1.2%, during the last seven trading days.

Both SPY and TLT this morning are trading narrowly at the top of those ranges.

SPY spent four of those days with the parabolic sar in bull phase, and then three with the signaler in bear phase. Truly, the market is in nowhere phase, a remarkable achievement at the peak of earnings announcement season amid an economy that, the experts claim, is accelerating toward recovery.

TLT has been in psar bull phase.

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Viewed broadly, however, the contrast between stocks and bonds is striking.

SPY has been on a steady rise since Feb. 5. It shows a confidence that profits will be on the increase going forward.

TLT has been trading sideways since early February, with a slight downward bias. If traders believe corporations will make money, they seem to see nothing but muddle in the future of interest rates and inflation.

To me it resembles that edgy, crackling feeling the fills the air the moment before the storm hits.

So as traders, how do we deal? Nimbly is the best that can be said.

At such moments, when all momentum is lacking, even a sideways strategy can be an invitation to disaster. My strategy is to play the short-term moves, and prepare to switch at a moment's notice.

Abbreviations:
psar - Parabolic Stop and Reverse
adx - Average Directional Index
pps - Person's Proprietary Signal
ma20 - 20-day moving average
macd - Moving Average Convergence-Divergence
mfi - Money Flow Index
sto - Fast Stochastic

Exchange-Traded Fund Symbols:
EEM - emerging markets
EUR/USD - euro/dollar currency pair
GLD - gold
JNK - high-yield corporate bonds
SPY - blue-chip stocks
TLT - Treasury long-term bonds
USD/JPY - dollar/yen currency pair
USO - crude oil
VIX - fear index

About the glance: The colors indicate the state of each signal.

• trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
• adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
• psar, pps, macd: green for bull mode, red for bear
• sto: green for overbought, red for oversold, yellow for the neutral zone.

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