This Chart is Warning of a Pullback… But How Deep Will It Go?

Stocks are due for a pullback here.

The initial “sugar high” from the Fed throwing trillions of dollars at the financial system is ending. And various ratios I track are suggesting we could have a period of “risk off” or consolidation.

Ratio work consists of comparing one asset class’s performance to that of another. When you do this for a risk asset like stocks, compared to a safe haven like long-term Treasuries, it can provide some insights into whether the financial system is leaning towards risk on or risk off.

The below chart shows the ratio between the S&P 500 and the 10-Year US Treasury. As you can see, this ratio switched from risk off to risk on March 23rd and has since been moving in that direction. However, it is now at resistance.

This would suggest a pullback for this chart, which would mean a period of “risk off” or at the very least a consolidation for the stock market rally.

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Best RegardsParagraph

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Posted by Phoenix Capital Research