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The Lead-Lag Report: Nouveaux Bulls Vs. Gray-Haired Bears


Nothing has changed. Dow new highs be damned -- market internals continue to favor a correction. I will not back down on the case until intermarket trends say risks have faded.



Industrials (NYSEARCA:XLI) – Sharp

Comments: Industrials have had a huge move in relative terms since mid-October, coinciding with strength in emerging markets and a return of risk-taking. A second attempt to break the moving averages has failed as a severe break took place. While it is possible a recovery move takes hold, the trend likely is lower.

Emerging Markets (NYSEARCA:EEM) – Downtrend Intact

Comments: A severe breakdown in emerging markets is underway, which indicates that all the hype over the cyclical trade at the start of the year is not being verified by price action. This remains a warning sign about global risk-sentiment, given that bets appear to be coming off for a pickup in growth.

Treasury Inflation Protected Securities (NYSEARCA:IPE) – Deflation Beats?

Comments: The IPE/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 the ratio is falling. This is entirely inconsistent with a bullish environment for stocks.


I have said it before, and I will say it again: Intermarket behavior signals a correction is likely. Nothing has changed within and across asset classes as of yet to signal that new all-time highs are justified. The leading nature of relative movement and large disconnects means risk assets are much more vulnerable than the media would have you believe. My firm's ATAC (Accelerated Time and Capital) models used for managing our mutual fund and separate accounts remain cautious.

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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