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Time to Rotate from Bonds to Stocks?

After touching bear market levels, the market made a hard reversal on Tuesday and on Wednesday, stocks were able to hold onto those gains.

So is it time to rotate from bonds to stocks? Trader Joe Terranova thinks so. To explain why, he broke down the technicals.

Since August 9, the 1,101 level on the S&P 500 index has been support. The market tried getting past through this level on Tuesday, but was only able to do so in the last 45 minutes of the trading. When it finally broke through, it didn't matter to investors what kind of good news there was, because the market was ready to rally hard. At the same time, Terranova said there was a reversal in the Treasury market. The 10-year yield went from 1.71 to around 1.90.

Terranova thinks the reversal is only beginning. Going forward, he would use the 1,101 level as your point of reference. Although she's not using the 1,101 level as her point of reference, Metropolitan Capital Advisors' Karen Finerman also thinks the rotation is underway.

What's the Trade?

Terranova bought the ProShares UltraShort Lehman 20+ exchange-traded fund.

Brian Kelly, co-founder of Shelter Harbor Capital, also thinks the rotation is happening. He's shorting bonds.

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