This is an environment that I believe is going to continue to surprise everyone. Never before have we seen four days in a row where US small caps are down, and emerging markets are up. Long-duration Treasuries have held strong despite Fed tapering, and Brazil is in the midst of a melt-up. US equities have been wavering back and forth, and all the action is in the areas most people thought with 100% certainty would be terrible places to park money. Make no mistake about it -- this is a strange tape. Defensive sectors have been warning that volatility was on the verge of increasing for a couple of weeks now. Utilities in particular have been a tell.
The soon-to-be available white paper "An Intermarket Approach to Beta Rotation," which my colleague Charlie Bilello and I cowrote and which won the 2014 Market Technicians Dow Award, touches on this very sector as a leading indicator of markets. Normally I'd be more concerned seeing such strength in bonds and utilities, but the fact that emerging markets are ripping higher is bullish. Given how one-sided the developed versus emerging market trade has been for over three years, I suspect funky behavior is going to continue for some time.
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