1998 Redux: Bonds Not Behaving Yet, 1966 Rising?

5/7 Update: The double top scenario looks more likely than it did on Friday. Bulls can claim the trade war is a wall of worry and the bears can call it a slope of hope. I'm still holding the gut short position I made based on the Drudge headlines on Friday.

The ratio of the Dow Industrials to the 30-year bond could be forming a head-and-shoulders top. A downturn in stocks or an upturn in bonds would move it towards completion. In 1999, stocks rallied and bonds fell,resulting in the surge to the 2000 top. The RSI still resembles the 1998 scenario.
Looking at the S&P 500 Index alone, there's also some dwindling possibility of a double top. However, the slow moving 250-day MA has always turned sharply lower in bear markets. The upturn in the 250-day resembles that of 2015/2016, which argues for a possible bullish breakout.
Back in 1998 the Fed cut interest rates before reversing course. The yield curve steepened into the 2000 peak. The market today is betting heavily on a rate cut. A rhyme with 1998 would see the Fed cut rates, spark a stock market melt-up and then panic as inflation reared its head.
Whether that would result in another deflationary bear market or a stagflationary meltdown over a decade or more is another question. Back in 1998, the stock market correction came amid a raging bull market and happened so quickly that the 250-day moving average didn't even move. As mentioned above, I don't see any bear market tops with a 250-day MA "smile" as part of a massive double-top, but there was a similar pattern in 1966 complete with a correction. The market would go on to a new high, but if you scored by the cash indexes, markets saw no gains for the next decade-plus.
FWIW, I felt compelled to short the market melt-up on Friday. Not heavily and with tight stops.
In summary, long-term market patterns still point to a 1998 scenario. The "smart money" in the eurodollar market is betting on the bond-leg of the 1998 scenario. There has never been this complex of a top over this long of a time frame. Various sectors and subectors already point in a bullish direction. Financials and small caps, to name two, broke important resistance on Friday. On the bearish side, if this is a top then this is the logical place for the market to fail. The stock/bond ratio confirms this with a possible peak of a right-shoulder. The bearish case could be largely wiped out as soon as next week though, if stocks extend their rally.

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