The Lead-Lag Report: Stock Market Correction Coming
The odds of a correction are rising as intermarket trends fail confirm the excitement that Nouveaux Bulls are expressing about overall markets. Risk-off is looking ever more likely.
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.
LEADERS: BEAR TRADE RETURNS
Consumer Staples (NYSEARCA:XLP) – Defensiveness
Comments: Consumer staples have bounced off of a support level and now appears to be leading. The strength is concerning, and is consistent with my recent series of writings about the potential for a correction to come.
Utilities (NYSEARCA:XLU) – Reversal
Comments: Utilities are starting to outperform again, consistent with the bear trade of consumer staples and health care leading. This is an ominous sign, which suggests a risk-off period is ahead.
Health Care (NYSEARCA:XLV) – Sharp Comeback
Comments: Health care has V-ed in what appears to be some defensiveness kicking in within markets as the Dow (INDEXDJX:.DJI) nears all-time highs. A break above the relative resistance of 0.287, if confirmed with other areas of the market, would suggest weakness in overall risk markets is likely to come.
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