The Lead-Lag Report: Corrective Behavior Underway
Intermarket trends have worsened meaningfully, suggesting that not only is a correction likely underway, but that it is very early in its move.
Financials (NYSEARCA:XLF) – Over?
Comments: Financials may now be at the start of a turn in leadership given recent volatility in asset markets. With bond yields falling once again and the yield curve beginning to narrow as eurozone fears return, it does seem plausible that underperformance takes hold in the near-term.
(More from Minyanville: Take a Look Inside the New Goldman Sachs Catamaran.)
Small-Caps (NYSEARCA:SLY) – Broken
Comments: Small-caps have strongly outperformed since late-November in a near-vertical way on the backs of increased domestic growth expectations and bets that the fiscal cliff would get resolved. Recent relative momentum indicates a complete breakdown in leadership has taken hold. This may be due to sequestration concerns impacting the domestic economy, which small-caps are highly sensitive to.
Energy (NYSEARCA:XLE) – Failure to Launch
Comments: Energy's strength appears to be over as the cyclical trade collapsed, with the ratio unable to definitively break above resistance of 0.52. This for now remains a challenging sector to be bullish on.
Internal negativity has worsened, as my firm's ATAC (Accelerated Time and Capital) models used for managing our mutual fund and separate accounts remain defensively positioned sensing the return of the deflation pulse. The concerning aspect of this is the earliness of the move, suggesting that declines are far from being over in terms of both magnitude and duration.
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.
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