Gut check - Risk OFF Ratio Spiking

1207 8 22
a year ago
If you watch the S&P500             or invest in equities , you often want to know what the general trend in the market is and there is one very simple ratio you can watch that alerts you to when the conditions are dangerous. Oddly, the way the market works, however, is that once everyone has sold (or taken enough risk off of the table), the market can then find a bottom.

So, it is that old adage, that it is darkest before dawn, but it is also darkest before it is "pitch black". Meaning to talk on both sides of the fence here because this is the kind of setup where we could accelerate down and if we do, I don't see what is going to stop us at this point.

Investors are moving OUT of HYG             (High Yield Bonds) and INTO the safe haven of US Gov't Bonds ( TLT             - 20 Years Gov't Bonds). This "RISK OFF" ratio is easy to plot and easy to track. I don't know the absolute levels that triggers a specific buy signal, but we are at TERROR levels NOT SEEN SINCE 2009 in the midst of financial market collapse - banks collapsing, brokers and leveraged traders getting wiped out ( Bear Stearns, Lehman, AIG             , etc).

So, tell me what you think? Are you in enough cash to "sleep at night" or are you still holding "margin long".


1102 SPX500             3:05PM EST Friday, Feb 5, 2016
a year ago
Comment: 1.72 last - Plenty of fear displaying itself with talks of negative rates now in the US too.
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timwest PRO
a year ago
More comments -
timwest PRO timwest
a year ago
I can't see the dates along the bottom, but the bottom on the far left is 2008-2009 where the ratio got up to 1.80 but only 1 months versus 3 months peaking at 1.75. We are right at 1.67 today versus 1.00 and 1.10 lows in the last decade.
+1 Reply
IvanLabrie PRO timwest
a year ago
So, not quite at the bottom yet...Monday can be terrible.
+1 Reply
I don't own any stocks. I trade weekly options-mostly credit spreads and iron condors. Lately, I find it hard to find good trades even in the bigger indicies like spx500, nas100, or iux (russell 2k). There's a weird "hush" on the market. It feels like we are poised on the edge, ready for a plunge.
I only see gold and TLT (as you said) in an up trend.
Love the ideas. Keep em coming. :)
+3 Reply
a year ago
Interesting. Thanks for sharing.
a year ago
In cash for some time now - for the same reason, gut feeling. I went out before the rally in advance to the drop, but now my account wins over the minus in indices
+2 Reply
IvanLabrie PRO
10 months ago
This was spot on...
coondawg71 PRO
6 months ago
Hey Tim, Love hearing your insight, how about an update. Thanks!
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