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The Lead-Lag Report: Correction Case Returns (Thanks, Cyprus)

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Reaction by intermarket trends to Cyprus suggests that the odds of a correction are once again rising. Not all is right in the land of the Nouveaux Bulls.

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Prophesy is a good line of business, but it is full of risks.
-- Mark Twain

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: REVERSALS

Financials (NYSEARCA:XLF) – Unclear



Comments: Financials have been under some marginal relative pressure lately as Cyprus news roils European markets and puts a bid back into bonds. It remains to be seen if a reversal is about to take place, but the direction of relative behavior is a key tell on inflation expectations going forward.

Consumer Staples (NYSEARCA:XLP) – V



Comments: Consumer staples have staged a complete relative V formation, breaking down as jobs data surprised a few weeks back, and surging following Cyprus headline risk. The trend higher now appears to be back in place, signaling risk-off pressure for markets.

Long Bonds (NYSEARCA:TENZ) – Yield Curve...Flattening...Again?



Comments: The yield curve looked to be on the verge of steepening before widening following Cyprus. It is unclear if a trend is about to start, but this remains an important relationship to watch for a potential risk-off period ahead.
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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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