I've harped on this IYR/XHB ratio divergence for far too long. Finally, it's near a price confirmation of a reversal. This is a risk off signal. Note the RSI is the highest RSI since the summer 2011.
This IYR relative strength chart shows what at first appeared to be a significant breakdown. As the market has broken down, this has quickly reversed and broke out of a wedge targeting ~.475.
TLT has broken out of a larger falling wedge. We can target the previous highs at 130. This is absolutely a risk off signal in the market. I'm using the TLT/SPX correlation cycle as a bit of a road map. You can see the similarities in the cycle to 2011.
The risk off / hunt for yield theme is also evident in the energy space. MLP / XLE recently broke a 10 month resistance line and screamed to new highs. Again note the RSI.
The message here is pretty straight forward. We are seeing a unanimous flight out of risk and into safety and yield. This tells us as swing traders to be selective with longs and more aggressive with shorts. As position traders and investors, we can take this time to build watch lists or do some fundamental analysis on new stocks emerging. Stay safe out there!
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