The Lead-Lag Report: Status Quo Correction Risks
Intermarket relationships continue to signal the odds of a correction are currently high as status quo deterioration remains.
LAGGARDS: NOTHING GOOD
Industrials (NYSEARCA:XLI) – Broken?
Comments: Industrials have had a huge move in relative terms since mid-October 2012, coinciding with strength in emerging markets and a return of risk-taking. The move now appears to be over given the break in the 20-day moving average. If this is the start of weakness, it would be a bad sign for risk-sentiment.
Consumer Discretionary (NYSEARCA:XLY) – Rolling Over
Comments: The expiration of the payroll tax holiday appears to be weighing down on the sector, combined with higher energy costs. This remains a highly vulnerable area, sector-wise, given the extent of outperformance in the group.
Materials (NYSEARCA:XLB) – Abrupt Decline
Comments: Materials have rolled over sharply, as realization on emerging market weakness kicks in despite China growth acceleration. The sharpness of the move lends itself to a bounce, but it is concerning from the standpoint of a breakdown in commodity excitement.
No major changes have occurred within the market despite averages holding around new all time highs. Correction risks based on intermarket analysis remain high. My firm's ATAC (Accelerated Time and Capital) models used for managing our mutual fund and separate accounts are highly defensive currently. Unless a significant improvement occurs internally in the market in the coming days, caution very much remains warranted.
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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