Market is a little too complacent

Gotta love the sell-off in Treasuries! While the increase in interest rates may mean that less home buyers step into the marketplace, and the recovery in housing crawls at an even slower pace, it does send positive mojo into the stock markets and should set up for some healthy gains in 2011.

With a rise in interest rates, comes several positives:

1. Money flows out of bonds and needs somewhere to go, equities
2. Higher rates make our economy more attractive to lenders, money flows in
3. The dollar strengthens / stabilizes, curbing fears of a dollar collapse derailing a recovery
4. Most importantly, in my opinion, sends the message that we've moved from the recovery stage, to the growth stage of this secular bull market.

Check out TBT as a way to play the sell-off in bonds. I've played this ticker up for the last month or so and am no longer in, but will look to reposition after a move back towards it's 200/50 day moving averages. I may not get too much of a chance though, with the two moving averages about to cross in the coming weeks.

As for the overall market, we've hit a patch of complacency where sentiment indicators start to send off warning signals.

1. The number of bulls to bears is over 2 to 1
2. The VIX (volatility index) is low, back around 16
3. Advisor and consumer sentiment are near their yearly highs, and
4. The Put to Call ratio is near it's lows, implying too many people own calls and not enough own put protection

I've happily closed out most of my names that rallied last week and this week. I'm still long the Australian dollar (FXA), the Brazilian Real (BZF), and just added HK to see if I get a healthy trend bounce off the 200day soon. I'll also continue to watch GGB, as it almost broke above the 200 day, but looks as if it may retest at a later date.

The Euro finally dipped today due to fear over Spanish debt. I'm still short, and wouldn't be surprised to hear more about Spain in the coming days. Also, emerging markets and commodities look a bit tired. We'll see if a tiny correction is in the cards. I will be a buyer if there is one in the coming weeks.