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The Lead-Lag Report: Market Confusion


After unrelenting selling, market internals indicate uncertainty over which way to go as a potential turning point in the cyclical trade takes hold.


A perfection of means, and confusion of aims, seems to be our main problem.
--Albert Einstein

Below is an assessment of the performance of some of the most important sectors and asset classes relative to each other, with an interpretation of what underlying market dynamics may be signaling about the future direction of risk-taking by investors. The below charts are all price ratios which show the underlying trend of the numerator relative to the denominator. A rising price ratio means the numerator is outperforming (up more/down less) the denominator.

For a full version of the Lead-Lag Report, click here.


Financials (NYSEARCA:XLF) – Reversal of Strength?

Comments: Financials have been a star performer all year, but recent outperformance may be ending as the ratio begins to roll over. I have highlighted concerns over the deflation pulse and behavior of the bond market, which has not meaningfully steepened in terms of the yield curve. A reversal may occur, particularly should flattening in Treasuries continue. More time is needed to confirm.

Consumer Staples (NYSEARCA:XLP) – In Line

Comments: Consumer staples have turned up a bit in recent days as some defensiveness kicks in to sector rotation. The move, however, could be short-circuited if dividend taxes are increased, pushing money away from income sectors.

Emerging Markets (NYSEARCA:GMM) – Test Time

Comments: I have been aggressively highlighting the strength in emerging markets despite the correction as one area of the stock market poised to outperform independent of US deterioration. The ratio is now testing whether continued strength can occur as it touches its 20-day moving average. A reversal might be a negative sign for risk assets and the cyclical trade.
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No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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