Volatility Studies on the TLT/SPX Ratio

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Inspired by 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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Question: I can't find a way to express the TED spread (treasury-euro dollar spread) to the SPX. I can do it on, but not here. Any ideas?
Technician rmwaddelljr
What treasury? what are the symbols of both?
rmwaddelljr Technician
3 math treasury & 3 mth eurodollar contract. The guy on stocktwits compared $spx & $ted
Technician rmwaddelljr
is it ?
rmwaddelljr Technician$SPX&p=M&st=ted&en=(today)&id=p15158121390
Technician rmwaddelljr
The link only show sp500, anyway i will check and come back to you
rmwaddelljr Technician$SPX&p=M&st=ted&en=(today)&id=p03988934547
Here it is "behind price" instead of below.
rmwaddelljr rmwaddelljr
I guess my point is that this spread can be the "canary in the coal mine", if you will. Notice October. It went to almost 5 on the left hand side of the chart (peaked) before the October "V" bottom.
Technician rmwaddelljr
I Dont see any 5 on the chart mate. What type of correlation are you seeing there?
rmwaddelljr Technician
Sorry...eyes must be tired:) works out to 3.15...try this chart with price labels.$TED&p=M&st=ted&en=(today)&id=p64306974403
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