Interesting Correlation: Shorter, Longer Bond ETFs

 |  Includes: DIA, IEF, IEI, QQQ, SHY, SPY, TLT, UUP
by: Gary Tanashian

Let's look at the ratio of the iShares 3-7 year treasury fund (shorter end) and the iShares TLT (longer end). The red box shown on the SPX below is where the market had been failing to get the memo about an impending downturn.

Now, with inflationary stresses threatening the long bond, the shorter funds look relatively bullish. Not surprisingly the stock market is gaining the bid as are commodities, many of which look pretty bullish for the short term.

If nothing else, IEI-TLT has proven to be an important leading indicator at a very significant time (April, with enough time to get out before the pig tanked). Do you think it deserves to be on radar? If that is a bottoming pattern on IEI-TLT, you do not want to be a deflationist right now.

Click to enlarge

Disclosure: Long IEI