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The Lead-Lag Report: Waiting on SuperBen

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Intermarket relationships appear to be re-testing some important levels as the world waits for SuperBen and the League of Extraordinary Bankers to suit up and fight the forces of deflation.

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MINYANVILLE ORIGINAL

Never talk for half a minute without pausing and giving others a chance to join in.
--Sydney Smith

Below is an assessment of the performance of some of the most important sectors and asset classes relative to each other, with an interpretation of what underlying market dynamics may be signaling about the future direction of risk-taking by investors. The below charts are all price ratios which show the underlying trend of the numerator relative to the denominator. A rising price ratio means the numerator is outperforming (up more/down less) the denominator.

To read the full version of the Lead-Lag Report, please click here.

LEADERS: THE PAUSE

Energy (XLE) – Can Trend Hold?



Comments: Energy is hitting up against its uptrend moving average, and is at an important juncture from the standpoint of a continuation of leadership. With tropical storm Isaac fast approaching and concerns over Oil disruptions rising, the next few weeks will be important to watch to get a sense of market movement toward the group.

Technology (XLK) – Surprise Recovery Takes Hold



Comments: Technology has outperformed the S&P 500 (^GSPC) as Apple (AAPL) momentum continues unabated. The sector ETF is now nearing an important relative resistance level, which could serve as a stopping point for continued leadership given how well the group has performed thus far in 2012.

Small-Caps (IWM) – Still Early



Comments: Small-caps are now showing behavior similar to what happened during the Fall Melt-Up of last year. A repeat may very well occur given weakness in the bear trade and a recovery in risk-taking underneath the market's surface.

LAGGARDS: DIVIDENDSANITY CONTINUES TO WEAKEN

Utilities (XLU) – Broken



Comments: Utilities continue to break down, and appear to still have further to fall. This remains a positive sign for markets given the role utilities has as a "place to hide" in equities when volatility is rising and recession fears increase.

Bonds (IEF) – Stocks Continue to Outperform




Comments: The ratio of bonds to stocks has broken down meaningfully since June 4, and the trend appears likely to continue given central bank action to come by SuperBen and the League of Extraordinary Bankers crowding out money from bonds.

Long Bonds (TLH) – Retest



Comments: The ratio hit the last high right before the June 4 low in equities as fear reached an extreme in the long bond/short bond ratio. The ratio has a long way to go, but appears to be re-testing its 20 day moving average on central bank uncertainty. Should the Fed enact another round of quantitative easing, rates may actually rise as money sells to the Fed, and inflation expectations continue to increase.

Conclusion

The market appears to be in wait-and-see mode given major policy announcements to come by the Fed and ECB. Continued underperformance in low beta/high dividend sectors remains a net positive, and could continue once more clarity comes following this week. Bullish sentiment seems more likely to continue either way.

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.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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