TLT, UST10Y and SPY - a heads up relationship

1 Okt 2022

I read somewhere recently about two co-relationships between bond prices/yields and the SPY.
First was about TLT - where TLT goes, the market (SPY) follows it was said.
Second, was about the UST10Y (US Treasury 10 Year Yields) having to abate its bull run before the SPY cools its bearish rout.

So, I took the opportunity to put these thoughts together visually and overlaid their charts.
Interesting observations between these three it seems...

There are three highlighted periods in 2022, all of which provide a very similar pattern.
Notably, the UST10Y has a tight inverse relationship with the TLT (UST 20Y Bond ETF), which is expected. And if we follow the markings in order...
The time line starts the cycle where TLT brings the SPY higher as the two are in alignment to move higher, where the UST10Y drops. Then there is a period where the UST10Y rises, and the TLT falls, but the SPY continues to countertrend (from TLT) and head upwards. This is not sustainable and TLT gave heads up of that (red shaded red box). Int he rest of the red box period, this is where the SPY stop diverging with TLT and follows TLT int he downward move. The shaded red box is the period where TLT is like a leading indicator of the SPY. To restart this whole cycle, it also seems that TLT needs to have a MACD crossover, and a MFI Histo crossover; the time lines mark the MFI Histo crossover after the MACD cross over.

Given these patterns, the current situations appears to favor a continued downside drift, at least until a MACD crossover, post MACD bullish divergence, and then a MFI Histo crossover. This would appear to take several weeks more.

Heads up!