Two Big Things Bulls Should Watch For And Worry About

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We’ve been of the view that the sharp rise in bond yields has been a reflection of a healthier economic outlook. But ths speed of the move has been remarkable, and yesterday we saw for the first time real carnage in the bond market, without an equivalently “optimistic” move in stocks (although stocks did end higher).So the first thing we’d watch for is a continuation of the bond selloff, without a continuation of the stock market rally, as that might signal an ugly, stagflationary outlook.

The other thing to watch is market internals.

While markets closed higher yesterday, the Consumer Discretionary Select SPDR slid, while the Consumer Staples Select SPDR ended higher, a shift from risk on to nervousness. Watch this. If that continues, it could be a sign of a stealth fading in bullishness not immediately picked up by the broader index.

Click here for 12 key risk factors to watch in 2011 >

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