From Chris Kimble: When it come to performance so far this year, would one be better off owning the S&P 500 or Long-Term Zero coupon bonds?
Below compares the S&P 500 to Pimco’s Zero Coupon Bond ETF (ZROZ). So far this year, both have done well and pretty much have the same returns!
Below looks at the Stock/Bond ratio (SPX/ZROZ), using the two assets from above. The ratio in our humble opinion, could be creating an important pattern, that could impact stocks and bonds.
The ratio put in a high back in 2014 and when it broke support at (1), bonds out performed stocks by a large percentage for the next year. Moving forward to the past few months, the ratio could be creating a topping pattern (head & shoulders top) at the same highs at it hit in 2014, at line (2).
A dual support test is in play at (3) above, that needs to hold to send a bullish message to the ratio and stocks. If support would give way at (3), it could be suggesting that bonds could out perform stocks for a period of time.
The Power of the Pattern is of the opinion that what happens at (3), could send an important message about portfolio construction going forward.
The PIMCO 25 Plus Year Zero Coupon U.S. Treasury Index ETF (NYSE:ZROZ) was trading at $118.43 per share on Thursday afternoon, up $0.27 (+0.23%). Year-to-date, ZROZ has gained 9.02%, versus a 8.74% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Kimble Charting Solutions.