Bernie Schaeffer
Bernie Schaeffer On Charts

Grading Stocks, Bonds, and Gold

Posted By: Bernie Schaeffer 02/01/2013

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Assessing 5-Year Returns for SPY, TLT, and GLD
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Trader Comments

Bernie Schaeffer:

With the 3 major asset classes -- equities, bonds and gold -- each arguably in bull market mode, and with my belief that at some point this year one or more of these asset classes will be generating negative returns disturbing enough to cause asset outflows, I thought it would be of interest to dissect their respective 5-year charts with the idea of "grading" them.

SPDR Gold Trust (GLD - 5-year return = +78.52%) -- This is the clearest "bull market chart" of the three in terms of the consistency of the uptrend, but some early warning signs can easily be suggested -- the 40-week moving average has crossed below the 80-week, GLD has been flirting with trading below the 40-week and the 80-week so far in 2013, and year-over-year returns for GLD have been consistently negative since October 2012. Bull market grade: B

SPDR S&P 500 Trust (SPY - 5-year return = +24.23%**) -- There are lots of strong bull market "markers" on this chart -- SPY is now trading at its highest level over the 5-year period, the 40-week moving average crossed above the 80-week in mid-2012, and the 160-week moving average recently crossed above the 320-week. On the other hand, over the course of this 5-year period the SPY price got cut in half and the vestiges of this "bifurcated" price action can be seen in a 320-week moving average that has been flat for 3 years and in the fact that all 4 moving averages are currently below their peak levels on the chart. Bull market grade: A-

iShares Barclays 20-year Treasury Bond ETF (TLT - 5-year return = +41.83%**) -- Though the TLT price is higher over this period and all moving averages are at peak levels, this chart describes a period in which "the ending price is higher than the beginning price" a lot better than it does "a bull market." Price movement has been very choppy and (in an ironic twist on the perceived "safety" of the bond market) no less volatile than that for equities. Also, TLT's price is now down by more than 10% from peak levels, and year-over-year  returns (excluding dividends) have turned negative this year, plus TLT is now trading below its 40-week and 80-week moving averages. Bull market grade: C

** Equity and bond gains on accompanying charts do not include dividends and I estimated a total 5-year return for each.

Bryan Sapp:

Until early this year, fund flows had been moving sharply out of stocks and into bonds.  However, the first week of January saw the second biggest equity inflow in history.  Given that, it will be tough for all three of these markets to continue their long-term uptrends.  At some point investors must choose between safety and beta, and one of these assets will likely see a big move downward when that shift occurs.

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