Here, then, are two more ETF indicators that you may wish to follow.
1. iShares Barclays 20+ Year Treasury (TLT). At the end of January, nearly every financial web site and nearly every important financial news source discussed the "Great Rotation." In brief, investors were leaving bond funds for the sunnier shores of stock funds. What's more, one would now have to contend with bond price depreciation if they made the mistake of sticking around. After all, the 30-year bond bull was officially over.
On the one hand, I have not been interested in owning long-dated Treasuries because the yield barely compensates one for the risk of participation. Moreover, the idea of seeking price gains in Treasuries tends to fly in the face of why one owns an income investment. On the flip side, the "Great Rotation" may not only be vastly overstated, it may be exceptionally misleading. Not only is the Fed actively engaged in purchasing U.S. debt to depress interest rates, but eurozone woes as well as the U.S. sequester are likely to bolster demand.
It follows that iShares Barclays 20+ Year Treasury still has the "mojo" to tell us when riskier assets might wane. For example, if TLT climbs above and holds above a 50-day trend line, near-term risk of stock market participation may be elevated.2. PowerShares DB Italian Treasury Bond ETN (ITLY). This morning, I read a tweet that admonished those who were making a mountain of Italy's molehill. From the perspective of the angry tweeter, Italian bond yields are no higher than they were a few months ago... so why all the hoopla? What the author fails to realize, however, is that trends are what make or break bull markets. For example, if China's economic growth is trending from 10% to 9% to 7.5%, its stock market fears the direction of the trend more than it is capable of embracing an absolute GDP number. Similarly, if the U.S. experiences genuine improvement in the jobs picture in 2013, the U.S. stock market may struggle with the possibility of a trend shift from loose monetary policy to tighter monetary policy. In essence, then, we are more interested in rising Italian bond yields (falling government bond prices) than the absolute price/yield. If PowerShares DB Italian Treasury Bond ETN continues to deteriorate further and further below key moving averages, you are likely to see volatile price swings in stocks -- both domestic and abroad. You can listen to the ETF Expert Radio Show "LIVE", via podcast or on your iPod. You can follow me on Twitter @ETFexpert. Follow @ETFexpert This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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