The long-term U.S. 10-Year Note has been dropping while the S&P is over bought

Both the S&P and the standard-bearer U.S. 10-year Note are both paper investments (i.e., as opposed to commodities we can hold in our hands). The divergence between the note and the S&P began recently, in the mid summer of 2016. The drop in the note has been very shallow; it’s easy to see this in the graph below. The S&P is over bought. It’s above both the long-term and short-term bullish trend channels (see the chart below) and its Money Flow oscillator has been in the over heated red zone since August. How high must the price-to-earnings multiple go before there is a market correction? The decades-long historical average is about 14; a few months ago it was over 30, now it’s over 40! Are corporate earnings likely to explode higher to make the multiple reasonable?

My graph of cyclicals divided by consumer staples has been crashing since early November (i.e., cyclicals have become very weak in reference to consumer staples).  This is confirmed by the plunge in the Semiconductor Sector in the last five weeks. The Apparel Sector, by comparison, has zoomed higher over the last two months by over 7%. A move away from growth stocks and towards defensive consumer staples typically happens closer to the end of bull market runs.

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