As this remarkable equity rally continues seemingly unabated, there are warning signs in the bond market that the end may be near.  Those of you who read the Weekly Navigator at http://www.marketperspectivesllc.com/ know that our proprietary Risk Flow Indicator (RFI) is still showing positive flows, so the long side should continue to be favored.  There are signs, however, that interest rates will be heading higher soon as a pending breakdown in 30 year T-Bonds indicates.

The chart below is a monthly chart of 30 year T-Bonds dating back twenty years.  I have also plotted a 90 month moving average which was briefly breached only one time back in late 1999.  If that moving average gives way decisively, that is the signal that the rally in equities is finally drawing to a close. 



Notice that historically equities continue to rally for an average period of 18 months to two years after bonds turn lower before either a significant correction or a trend change takes place.  What is interesting in this case is that this latest equity rally was driven purely by the quantitative easing policy of the Fed, not due to honest earnings and economic growth.   The easy money has found its way onto bank balance sheets and into treasuries and the equity markets.  Consumer and small business loans?  Why would the banks take that kind of risk when they could either take that free money and buy treasuries, or better yet take that money and keep pumping it into equities?  So while the economy continues to struggle - just ask the millions of unemployed - the equity markets continue on their merry way.  From the looks of things however, the clock may be ready to strike midnight and Cinderella may be stranded with no ride home from the ball.

For now the trend remains up as the risk flows are positive.  If investors begin pulling back from risk, that is a sign that change is in the air.