If you have TV, Internet, or if you speak to any other humans, it's hard to miss the fact that stocks have been on an exceptionally linear, multi-year rampage to record levels.  This incessantly perfect diagonal line higher has meant that anyone hoping to see some of the traditional correlation between stock prices and bond yields will be sorely disappointed if they look at anything other than short term movements.  So in the interest of avoiding disappointment, let's do that!

As the chart shows, the trading following last week's FOMC Announcement has been well correlated.  It's worth noting that by zooming in on other short term time frames, we could make other recent  weeks look similarly connected, but this instance is interesting because both stocks and bonds nudged up to recent multi-month highs (all-time highs in the case of stocks) and bounced decisively back toward lower levels.  Does this tell us anything about what's going on right now and what might be coming?

Here are a few thoughts:

1. Stock/bond correlation tends to increase in response to geopolitical concerns, and those have been in play to some extent.

2. We're approaching quarter-end, which can see increased incidence of asset-allocation trading (i.e. investors moving money in investment portfolios between stocks and bonds).

3. Bonds had done more to price in a Fed Announcement that firmed up rate-hike expectations and confirmed the October meeting would mark the end of new asset purchases.  That reality is just as bad for stocks, which had done essentially nothing to price it in.  There's not much here, but perhaps the imbalance in the respective asset classes' tendency to "price in" expected realities is contributing as well.

4. I hate to add fuel to a smelly fire--and until now I was proud to have foregone mentioning it--but the Alibaba IPO is also a consideration.  It tangentially relates to the "asset allocation" point above in that bonds may have been sold to get in on the action.  It's further been suggested that the IPO could mark some sort of turning point for equities.  I don't have an opinion there, but the argument is making the rounds.

5. There's also been an undeniable shift in European bond market sentiment (from negative to positive), as well as renewed vigor among central bankers concerning easing measures.  It was and still is an important fear for US bond markets that European bond markets had put in their best levels of the year at the end of August.  If hope is rekindled that German Bunds, for instance, can make another run at all-time lows, it would bode well for Treasuries and MBS.

7.  Finally, with respect to our recent discussion of 5yr Treasuries, a technical picture is taking shape that suggests 5's could return to a long term trend channel boundary.  The chart is much easier to understand.  Long story short, the spot that 5's managed to bounce makes it look like they could run back to the other side of their long-term trend, even if they ultimately remain on a negative tack.  Not only that, but it's also significant from a technical standpoint that they managed to bounce before hitting 2013 highs.

Today's calendar is limited to New Home Sales as the only top tier report.  Considering economic data hasn't been a market mover in general, the stock/bond relationship seems worth watching here.