Inflation Indicator Breaks Support, Continues To Fall
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.
(Click on image to enlarge)
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.
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