SPY-TLT Ratio vs R2K and Index Checkup

Back in October, I looked at the S&P 500 Index divided by TLT and how it had a very close relationship with the Russell 2000. I also discussed shorting the market on the assumption rates peak when the taper starts. Thus far, TLT has moved up a bit from the November taper announcment, but the Russell 2000 is threatening a new low. This tells me weakness in SPY or strength in TLT, or probably a combo, could be on the way. I'm not using this to forecast a target, but if ratio caught down to the Russell 2000 it would imply about 8 percent downside in the ratio, which coould come from a combination of SPY down and TLT up. (The Russell 2000 could be oversold, but I'm not leaning that way.) This also highlights how negative inflation and higher rates can be for stocks.

Here are the major index ETFs. The DJIA looks the strongest. The rest are all at crisis points. Break lower and there isn't support until much lower. Reverse higher and support is recaptured. I'm open to any interpretation here and focusing on the shittiest stocks I can find. If I could have a wish, it would be a rally into the open tomorrow and then a collapse taking out supports everywhere on the indexes. I would close the day heavily short XLY January puts.

Here is TLT. It isn't clear to me. Moreover, I can't say whether inflation will takeover or bond market traders seeing through to the next Fed move will bid it up even if inflation and crude rise. What I can say for sure is that if TLT starts dropping, the stock market is in serious trouble. Then we talk about 1987 style moves and 20-percent limit down days because of two facts. One, if the Fed intervenes it will drive crude and inflation higher. Two, every time the Fed does QE, long-term bond yields go up. That's the scenario where I would throw all cautioun to the wind and look to get my entire portfolio leveraged up as high as possible with OTM puts because there's no escape for bulls or the Fed. I still lean towards deflation though. I don't think the final endgame is here yet.