The Lead-Lag Report: Emerging Rotation
While corrective risks remain in the US, the rotation in emerging markets appears to be getting started in a very real way. Could this be the early set up for the Fall Catalyst of 2012 of new all-time highs led by overseas assets?
Knowledge is power and enthusiasm pulls the switch.
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: ROTATION OVERSEAS
Financials (XLF) – Surge
Comments: While it appeared that financials strength was nearing its end, a surge has occurred as technology has dragged down on broader market averages. Repricing in of financial strength is a bullish sign despite continued near-term deterioration in other intermarket trends.
Emerging Markets (GMM) – Breakout?
Comments: Two weeks ago I wrote that, “I maintain that part of the Fall Catalyst will be a period of meaningful outperformance in BRICs (Brazil, Russia, India, China), but near-term performance is a bit concerning.” A breakout appears to be underway despite US correction risks as money rotates overseas.
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