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Tuesday, February 26, 2013

The "great rotation" backwards?

I am sure most people have heard mention of the supposed "great rotation" where money is supposed to leave cash and bonds and head into equities.  I called it a good contrarian sign not long ago in this blog.  Check out this daily chart of TLT.

Last summer as SPX was making its low in early June, TLT was busy making a double top.  The high volume down day marked by the red arrows was the kick off to the correction in bonds.  That helped ignite the rally we have seen in stocks since then.  The post election sell off in stocks saw a rally in TLT.  The kick off of that rally is marked by the blue arrow.  Notice the much lighter volume then we saw on the down move.  The sell off continued after the Nov. low in stocks.  TLT has spent the last several weeks in a tight range all coiled up for a big move.  Notice the big move up on high volume today.  Is that a kick off to a prolonged rally?  It sure looks likely to me.  Maybe the "great rotation" story is correct, they just had the direction wrong, LOL.  Just maybe the rotation is from risk assets to cash and bonds.  I guess we will see.


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