Technician

Volatility Studies on the TLT/SPX Ratio

TLT/SPX  
TLT/SPX  
1393 15 30
Inspired by AdrianRaymondFX https://www.tradingview.com/u/AdrianRaymondFX/ post on the ratio of the long term 20-year treasury bonds over the SPX             . I have looked at that ratio from a volatility perspective, deriving this tiny study with some conclusions that could be handy..

- Bollinger Bands:
Definition: I have added a 52-week bollinger bands , which is a measure of market volatility, the band widen when the underlying instrument is volatile, while it narrows or squeeze when the underlying instrument gets in-volatile. Traders use bollinger bands in different way, one of them is to monitor when the bands squeeze which hints a breakout is imminent, as such periods of in-volatility usually followed by strong moves.

BB on TLT/SPX: The band has been narrowing for a while following the 2008-2009 crash, to a very narrow range within the past year or so, indicating the ratio is at a very in-volatile stance.

-Average True Range(ATR): The ATR is another indicator of volatility, without going into too much details about the construction of this indicator, in short it's constructed through a formula that compare the range of each period.

ATR on TLT/SPX: Its visually very clear on the chart, the indicator moves higher when major moves in the ratio occur, starting from the left, the ATR line was high but moving lower following the 2000 market crash, where it dropped below the pivotal zone(colored in YELLOW) to the GREEN zone. The green zone clearly indicates a low volatility environment. A break out from this green zone to the RED zone, signaled a pick up in volatility, and either a market crash or a hefty correction. as shown on chart. The ATR line is currently in the green complacency zone, as the recent test of the yellow zone failed to break higher to the RED area.

Putting Both together: without looking at any other technical studies(such as support and resistance levels) , and looking solely on volatility studies, what we got now is a bollinger band squeeze, and ATR within the green zone, that might not be an immediate bearish signal, but at least its another warning signal, that tells we are ready and possibly close to a major move. I will keep my eyes on the ATR now for a break above that sensitive zone in yellow.

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jlraby
2 years ago
I find TLT confusing lately. In the past, it seems like it only went up a lot when the market was down or in a correction, but lately it's been going up in tandem with the market. This doesn't seem normal. Is it? I keep waiting for TLT to go down when the market is up so I can buy it at a decent price, but it just keeps going up. It seems abnormally high right now, especially when looking at its 50 dma.
+1 Reply
Great one, I agree that breaking the "Yellow" zone by ATR is required first for confirmation
+1 Reply
jangseohee
2 years ago
Internal bleeding has started about a months ago
It
+1 Reply
timwest PRO
2 years ago
If you multiply the TLT by 100, you can get more decimal places. (TLT*100)/SPY Ought to be enough. And of course, you picked a really nice time to publish the chart - what a nice pop in the ratio after you published. Well done.
+1 Reply
jangseohee timwest
2 years ago
Thanks Tim
which is why timing is important, though daily is not as good as 1min
but it is good enough for me
All factors are pointing to high chance of break out, it just happen so that i happened to do this ratio at that particular moment
Reply
rmwaddelljr
2 years ago
Question: I can't find a way to express the TED spread (treasury-euro dollar spread) to the SPX. I can do it on stockcharts.com, but not here. Any ideas?
Reply
Technician TOP rmwaddelljr
2 years ago
What treasury? what are the symbols of both?
Reply
rmwaddelljr Technician
2 years ago
http://en.wikipedia.org/wiki/TED_spread
http://stocktwits.com/Inst_Insider
3 math treasury & 3 mth eurodollar contract. The guy on stocktwits compared $spx & $ted
Reply
Technician TOP rmwaddelljr
2 years ago
is it https://www.tradingview.com/e/eFaeS7mK/ ?
Reply
rmwaddelljr Technician
2 years ago
http://stockcharts.com/h-sc/ui?s=$SPX&p=M&st=ted&en=(today)&id=p15158121390
Reply
Technician TOP rmwaddelljr
2 years ago
The link only show sp500, anyway i will check and come back to you
Reply
rmwaddelljr Technician
2 years ago
http://stockcharts.com/h-sc/ui?s=$SPX&p=M&st=ted&en=(today)&id=p03988934547
Here it is "behind price" instead of below.
Reply
rmwaddelljr rmwaddelljr
2 years ago
I guess my point is that this spread can be the "canary in the coal mine", if you will. Notice October. It went to almost 5 on the left hand side of the chart (peaked) before the October "V" bottom.
Reply
Technician TOP rmwaddelljr
2 years ago
I Dont see any 5 on the chart mate. What type of correlation are you seeing there?
Reply
rmwaddelljr Technician
2 years ago
Sorry...eyes must be tired:) works out to 3.15...try this chart with price labels. http://stockcharts.com/h-sc/ui?s=$TED&p=M&st=ted&en=(today)&id=p64306974403
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