The Canadian Financial sector has been in the news lately and there have been some big gainers. Seasonally, they get a bid going into Canadia RRSP season.
There is a phrase that goes something like ' when even the dogs start barking, you know the rally is over.'
I am not sure I agree, but it does make you pause. The muted news out of Europe can only help. Funny how European news goes to backburner as the earnings come in. Then, when we can't focus on earnings data, we go back to debt and politics it seems. I mentioned to a friend the other day, why do Merkel and Sarkozy always seem to meet on a full moon? It just seems to work out that way lately.
I have a couple of cautionary notes here.
1) The german 2 year note had a negative yield this week. What that means is if you invest $100,000 they will give you less than $100,000 back and you knew that when you bought it.
2) The US Treasury 10 year priced with a yield of 1.9% . That is not a sign of money moving out of bonds to enjoy this great rally. TYX = 30 year, TNX= 10, FVX = 5, 2 year, IRX = 3 month. Notice how the bonds haven't lifted at all throughout the entire rally of last fall. That is hard to believe.
So as stong as this rally has been, there does not seem to be a move out of bonds into equities. If we get a great rally that should happen in earnest. Bonds are a safe haven for investors. But less than 2% on a 10 year bond is less than inflation normally. If large institutional investors are still willing to pour money into the safety of bonds with a low yield, we should probably be cautious in the equity markets. 1 Small toothpick can pop a very large rising balloon. Perhaps that is the current Equity market.
Good Trading,
Greg Schnell, CMT
