Technically, Bonds Look A Lot Better Than Stocks

 |  Includes: AGG, BND
by: Market Blog

By David Berman

If you’re looking for a technical argument why stocks are struggling to hold on to early gains these days, Bank of America’s head of U.S. technical analysis, Mary Ann Bartels, has a bearish one: The stock market is testing its October lows, when the S&P 500 dipped below the 1,100-level early in the month. “Last week the S&P 500 fell below its 50-day moving average which is the new level to watch – 1228,” she said in a note. “A failure to move above and hold the 50-day moving average confirms to us that we have already begun to enter the phase of testing the October lows near 1100-1074.”

In early afternoon trading, the S&P 500 was sitting at about 1,212, down 8 points for the day and about 16 points below the 50-day moving average. Ms. Bartels remains concerned that from a technical perspective, stocks are looking “eerily similar” to the bear market of 2008 and 2009, which isn’t good news, of course.

She doesn’t expect a new bear market to emerge until the second quarter of 2012. In the meantime, she sees a 50% probability that the S&P 500 could dip as low as 935, marking a scary 23% rout from the index’s current level.

“Bonds are still favored over stocks,” she said.

Indeed, she believes that bond yields are signalling that a so-called “risk-off” trade is under way – meaning that investors are looking for safe havens away from the stock market. She estimates that the yield on the 10-year U.S. Treasury bond is headed to just 1.5% – a remarkable forecast, as it would represent a new low.

The yield fell close to 1.7% in September, then its lowest level in decades. Since early December, the yield on the 10-year bond has slid from about 2.1% to Monday’s 1.83%.

Disclosure: None.