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The Lead-Lag Report: Market Tug of War

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Consumer staples strengthen along with health care and small-caps. Laggards include financial and utilities.

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LAGGARDS: FEW AND FAR BETWEEN

Financials (NYSEARCA:XLF) – Support Hit



Comments: Last week I stated that "despite a powerful 'risk-on' Thanksgiving week, financials did not outperform broader markets, and appear to be in the early stages of rolling over. More time is needed to confirm, but a breakdown in financials is not consistent with a healthy reflationary environment for equities." Some minor weakness has kicked in, but the fact that the ratio is hitting against support may indicate the downtrend will not persist.

Utilities (NYSEARCA:XLU) – Retesteroo



Comments: After severe underperformance in utilities, the sector has staged a nice relative comeback, but it remains to be seen whether a trend higher is beginning. The sell-off was extreme, so it is to be expected that a recovery in sector strength should occur.

Energy (NYSEARCA:XLE) – Rolling Over



Comments: Energy may be on the verge of meaningful weakness as the ratio rolls over despite continued concerns over the Middle East and war with Israel. Lack of follow-through from the uptrend suggests energy is likely not a good way to trade a continued bullish move in broader assets.

Conclusion?

A retest by defensive sectors to their respective 20 trading day moving averages may now be over, given continued improvement in credit spreads and high beta small-cap outperformance. The markets do seem to favor a continued move highs in the near-term, but a bit more time is needed to gauge the strength of conviction within markets.

Editor's note: This update is published every week exclusively for Minyanville, and is compiled by Michael A. Gayed, CFA, Chief Investment Strategist of Pension Partners, LLC.

Twitter: @pensionpartners
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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