The Lead-Lag Report: Weak, Weak, Weak
This week's Lead-Lag Report continues to warn investors that a potential correction could occur in October. Weakness continues, and unless earnings cause a change in intermarket trends, caution remains warranted.
Energy (NYSEARCA:XLE) – Downward
Comments: It appears that energy continues to try to find a trend as its recent underperformance causes its relationship to the S&P 500 to fall back to early September levels. It is curious to see that energy stocks have not surged further given open-ended monetization by the ECB and the Fed. It appears that reflation is not being confirmed in the here and now.
Small-Caps (NYSEARCA:SLY) – Broken
Comments: Small-caps continue to underperform in a meaningful way. It appears that QE3 has not spurred animal spirits in higher beta stocks, and the trend remains down for now until more clear and comfortable risk-taking occurs. The ratio may retest the June 4 low.
Technology (NYSEARCA:XLK) – Destroyed
Comments: Technology has gotten destroyed in recent days relative to the S&P 500 on Apple (NASDAQ:AAPL) manufacturing concerns, and a general feeling of profit taking relative to the broader market. The trend remains down and severe weakness could persist into earnings season.
Market internals continue their trend of deterioration entering into earnings season. Could a correction be averted if markets like earnings announcements to come? Absolutely – but for now, caution remains warranted.
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