As I often reiterate, sideways churn following a large advance is mostly a good thing, being a necessary precursor to the next phase of the uptrend. The Dow's current behaviour appears to be no exception. Nothing has occurred on my Gann-chart to suggest the long recommendation is in any doubt.
Those familiar with my updates will be well aware of my high-conviction recommendation that US ten-year treasury yields are on their way towards 3.5%. Central bankers around the world, however, appear somewhat rattled by the recent ongoing rise in the yields of their medium-dated sovereign bonds. German and UK sovereign yields of similar duration are also rising to their next set of targets.
US Federal Reserve chairman Bernanke and the UK's Mark Carney surmise that the markets are being hasty in this inter-market relationship, suggesting there are insufficient inflationary pressures to justify the rise. In this respect, I think they are right. However, I believe they are wrong about the dynamics driving this move. In my opinion, bond yields are not rising due to rising inflation, but rather because of a switch back to more normal asset allocation. As the risk of financial crisis recedes, funds are flowing back from perceived safe-haven assets and into equities. Further, I could never really see any justifiable reason for bond yields in the US or Germany to have been driven down to such low levels in the first place, so this move is simply correcting those past mistakes. This is the 'reverse capitulation' mentioned in my updates throughout last year, in perfect motion.
Recommendation: stay long. Target 16,175. Stop-losses can be activated on weakness below 14,350.