Depressionary Boxes: Hemorrhage and Injection Phases Defined

Depressionary boxes are characterized by hemorrhage and injection phases; The F-TV description is carry trade off (stocks go down) and carry trade on (stocks go up). The TIP (Treasury Inflation Protected) to Nominal Treasury ratio provides a good distinction between these phases.

The last hemorrhage phase was foreshadowed by technical weakness in 2007. The ratio bottomed in 2008; Stocks turned in early 2009. The rising wedge pattern illustrates another liquidity phase. Technical deterioration within this pattern will foreshadow the onset of yet another “crisis” to be named later.

TIPS to Nominal 7-10 Ratio: