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.
Utilities (NYSEARCA:XLU) – Yuck
Comments: Utilities severely underperformed in the last couple of weeks following Obama's win as bets increased on dividend tax rate hikes to come in 2013. The breakdown has been fairly substantial, diverging from strength in bonds.
Small-Caps (NYSEARCA:SLY) – Sideways
Comments: Small-caps have bounced around ratio support and are showing no real conviction as to the ultimate relative trend. More time is needed to see if risk sentiment in terms of high beta leadership takes place.
Technology (NYSEARCA:XLK) – Bottoming?
Comments: Following technology's roundtrip collapse, a bottom may be near, which could result in a strong snap-back for the sector. More time is needed to confirm, but from a trading perspective, it seems plausible to play a return to leadership.
Various important relative levels are getting reached within the markets, and may be a sign of an important turning point. Further downside may be limited, but a rolling-over of the cyclical trade would be an ominous sign for a continued rally into year-end. More time and confirmation is needed for a high conviction trade in either direction.
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