The TIP/TLT ratio reflects that the trend has been lower inside of falling channel (1) since the highs back in 2011. The ratio hit the top of the falling channel earlier this year at (2) and was unable to break out. After hitting the top of the falling channel at (2), the ratio has turned lower and has traded sideways the past few months.
The ratio is now testing the top of its short-term trading range at (3), where a key resistance test is in play. If resistance would hold at (3), it would suggest another short-term peak in inflation is taking place and it could send a short-term positive message to government bonds, that have been hit hard of late.
For inflation to become an issue, it needs to break out of resistance at (3) and break above falling channel (2).
The iShares Barclays 20+ Yr Treas.Bond ETF (TLT) was unchanged in premarket trading Tuesday. Year-to-date, TLT has gained 5.98%, versus a 15.92% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Kimble Charting Solutions.