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The Lead-Lag Report: A Warning for New Year Bears

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New Year bears may be in trouble given that various intermarket trends favor bullish behavior in risk assets. For the bulls, the trend remains your friend.

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MINYANVILLE ORIGINAL

Now the difficulty with those warnings is that they were not specific.
--Lee H. Hamilton

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: FINANCIALS RALLY ON

Financials (NYSEARCA:XLF) – Breakout Coming?



Comments: After stalling in November, Financials are beginning to meaningfully outperform again. A near-term breakout of ratio resistance would be bullish and consistent with the move out of low beta into high beta areas of the market. All year financials have been key to the macro reflation theme, and that very much continues.

Europe, Australasia, and the Far East (NYSEARCA:EFA) – Wowzers on Outperformance



Comments: Developed markets continue to outperform the US. And the trend remains intact. The ratio has now nearly reversed all of the weakness that occurred in the first half of the year, and strength remains a bullish sign for risk sentiment.

Treasury Inflation Protected Securities (NYSEARCA:IPE) – Reflation?



Comments: The IPE/TENZ (NYSEARCA:TENZ) price ratio is one way of seeing if inflation expectations are rising or falling within the bond market. When the ratio is trending higher, it means bets are occurring on rising prices ahead. Note that a very real trend higher appears to now be asserting itself, which is bullish for risk assets.
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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.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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