Bonds usually sell off when the stock market rallies. The reason is that investors sell out of lower yielding bonds when higher yields can be gained in the stock market. It's a 'risk on' thing.
Last week was odd. Big money came out of bonds but it did not go into stocks. Where did it go? It went into cash as evidenced by the big rally in the U.S. dollar last week.
Money moving into cash as a fairly defensive move and it begs the question, why? Blackrock and other large money managers have made big bullish predictions about where markets will close by the end of 2014. A Blackrock analyst recently predicted that the S&P 500 will close up as much as 20% by the end of 2014.
The indicator that we use to track what institutional traders are doing is the TICK. The TICK measures market makers ability to match up a buy order (+1 tick) with a sell order (-1 tick), by EOD. Reading over +600 suggest institutional buying, while readings below -600 suggest institutional selling. Only once in 2014 have we detected institutional buying on the TICK. If money managers were really convinced that the S&P 500 was going to close up 20% by the end of 2014, then why don't we see them buying across entire sectors (which would push the TICK on some days to close above +600)?
In this week's episode I talk more about this: http://www.youtube.com/watch?v=5s5o0JpTAOg
The mainstream financial media is not talking about the fact that China's real-estate market is in the midst of crashing. Last week a huge China developer went bankrupt. Luxury homes in China are being dumped as fast as possible as evidenced by some owners selling 20% below what they originally bought the home for. Could money coming out of bonds and stocks and going into cash be a sign that institutional traders are bothered by China's real-estate crash a lot more than they are leading on?
Could it be that Janet Yellen's slip of the tongue regarding the Fed raising interest rates about 6 months after tapering ends, is bothering institutional traders more than they are leading on?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.