Bonds and Financials are correlated tightly. We all know that. But the trade appears to be getting set up for a fabulous fourth quarter again. This chart inverts the TLT 20 Year Bond ETF on the top panel so that it behaves the same as the financials. Notice the breakout in the 4th quarter of 2016 when all three charts broke above trend lines. The stage appears to be setting up again.
With the inverted breakout (Breakdown in reality) on the TLT on Wednesday, this looks like it is setting up for another bullish trade into the financials in the fourth quarter. This would be bullish KBE and KRE and bearish TLT which has an opposite, TBT. The bonds will move much slower in percentage terms than the stocks.
Greg Schnell, CMT, MFTA.