The Lead-Lag Report: Resistance Everywhere
As markets wait for the outcome of US presidential elections and the coming Greece austerity vote, internals hit all kinds of resistance and support levels. Clarity to come, or further confusion? We'll find out soon enough.
I assess the power of a will by how much resistance, pain, torture it endures and knows how to turn to its advantage.
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.
For a full version of the Lead-Lag Report, click here.
LEADERS: NO CONVICTION
Financials (XLF) – Resistance
Comments: Financials have been a star performer all year, but recent outperformance is now hitting up against ratio resistance. I have highlighted concerns over the deflation pulse and behavior of the bond market which has not steepened meaningfully in terms of the yield curve. A reversal may occur, particularly should flattening in Treasuries accelerate.
Emerging Markets (GMM) – Leadership Intact
Comments: I have been aggressively highlighting the strength in emerging markets despite the October decline as one area of the stock market poised to outperform independent of US deterioration. I suspect this trend remains early, though further strength may be attributable more to a declining S&P 500 (INDEXSP:.INX) rather than advancing emerging market index.
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