Important Indicator Shows Little Reason To Expect Rising Inflation (TLT)

From Chris Kimble: The economy continues to do well, along with the stock market, prompting many to be concerned about inflationary pressures picking up speed.

Below looks at the TIP/TLT ratio and the message it is sending about inflationary pressures, or lack of.

Since 2011, this inflationary indicator has continued to create a series of lower highs, inside of the red shaded channel above. As mentioned in the chart, the indicator actually hit a low last July and started pushing higher. At the time of the low in this indicator at (1), nearly 90% of bond investors were bullish bonds and few thought the Fed would raise rates. That was a crowded trade that did not go well for bond bulls, as bonds fell hard and rates pushed sharply higher.

Turning the page forward 10-months, the majority feel like the Fed will raise rates. Does the indicator agree with the crowd at this time? The TIP/TLT ratio hit 6-year falling channel resistance at (2) in March of this year and the ratio has continued to slip lower. The weakness the past 6-weeks has the ratio breaking below rising support at (3).

Was the rally in this ratio at (1) a signal that inflation is back or was the rally nothing more than a counter trend rally, in a continuing downtrend? If inflation is really back, one would need to see this ratio reflecting strength and breaking out of its 6-year falling channel.

The iShares Barclays 20+ Year Treasury Bond ETF (NASDAQ:TLT) fell $0.08 (-0.06%) in premarket trading Wednesday. Year-to-date, TLT has gained 4.10%, versus a 8.25% rise in the benchmark S&P 500 index during the same period.

TLT currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #17 of 27 ETFs in the Government Bonds ETFs category.

This article is brought to you courtesy of Kimble Charting Solutions.