Stocks vs. Bonds: Stocks Reversing

After almost a year of underperformance, stocks have recently broken their downtrend of underperformance versus US Treasuries. The chart below is reproduced from our Daily Morning Lineup, and it highlights the relative strength of stocks versus bonds over the last year. When the line is rising, it indicates that stocks are outperforming bonds, and vice versa for a falling line.

Two weeks ago, we highlighted that stocks had finally broken the downtrend that had been in place since the start of the year. Leading up to today, stocks drifted lower relative to bonds until yesterday where they found support at the downtrend. With today's rally, though, the relative strength pattern is also showing signals of a head and shoulders bottom, which is considered a positive technical signal. Hopefully tonight's positive news from IBM can carry over into the trading day tomorrow.

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