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The Lead-Lag Report: The Bull Rebellion Strengthens


Continued bullish rotation is underway as intermarket trends indicate the move in risk assets is still very early. Rally on, my friends...rally on.


It doesn't take a majority to make a rebellion; it takes only a few determined leaders and a sound cause.
--H.L. Mencken

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.


Energy (XLE) – Resistance Hit

Comments: After a powerful period of outperformance, coinciding with strength in oil prices, energy has now hit up against ratio resistance. I suspect the trend is likely to continue higher, but any kind of a break from here might mean concerns over impending military conflict in the Middle East are easing.

Industrials (XLI) – Acceleration?

Comments: Industrials continue to hold on to the leadership position, and the trend continues to look early given risk sentiment which has only recently started to turn in favor of equities. Outperformance here would suggest bets are picking up on global growth accelerating.

Financials (XLF) – Leading Again?

Comments: Financials are trying to fight back, which makes sense on a return to reflation. Potential QE coming for Europe means banks recover as the yield curve steepens and inflation expectations return. This remains a very important sector to pay attention to in coming days.


Utilities (XLU) – Ripped Apart

Comments: Utilities completely got ripped apart in recent weeks, behaving exactly like the first quarter of this year when stocks staged a powerful rally. This is a bullish sign as it suggests a significant change in risk sentiment is under way.

Consumer Staples (XLP) – Downtrend

Comments: When money moves away from low cyclical sectors, it means the environment is more conducive toward stocks. Weakness after being turned away from price ratio resistance is a bullish sign for overall market averages.

Bonds (IEF) – Falling Hard

Comments: The ratio of bonds to stocks is breaking down. This suggests risk-taking is aggressively underway, and the trend lower appears likely to continue given absolute yields still around post-Lehman levels.


Continued bullish rotation is underway, with the next leg higher likely led by materials, emerging markets, and financials. "Rally on" appears to be the most appropriate term to use with such intermarket behavior expressing itself now.

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
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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.

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