The Stock:Bond Ratio Says “Risk Off” Is here

The stock market is in serious trouble.

Yes, I know that FANG stocks are going to infinity and nothing can bring this market down. But the reality is that “beneath the surface” there are plenty of signs of a significant “risk off” event coming.

First and foremost, the Russell 2000 is DRAMATICALLY falling behind on this rally. Typically this index LEADS to the upside. However, as the Russell 2000: S&P 500 ratio demonstrates below, not only is the Russell 2000 lagging significantly, but the entire uptrend for this ratio is over.

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On top of this, the stock : bonds ratio is at levels that has preceded every stock sell off in the last 12 months. Below is the S&P 500: Long-Treasury ratio. As you can see, every time this ratio has become this overbought, stocks topped soon after.

And all of this is synching up, right as the Fed starts draining $40 billion per month in liquidity from the financial system every single month.

2,750 (red circle) is the first downside target. But based on the Fed’s actions, sub-2,600 is in the cards.

The time to prepare for this is NOW before the carnage hits.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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