The Lead-Lag Report: Correction...Starts?
Intermarket trends suggest that a correction may be underway just as the Dow hovers around 14,000. Relative behavior is simply not confirming absolute price excitement.
Consumer Discretionary (NYSEARCA:XLY) – BROKEN?
Comments: Weaker-than-expected consumer confidence, combined with rising oil prices, may finally result in a relative top for the consumer discretionary sector after stunning outperformance since late-2008. More time is needed to see if the break below the 20-day moving average will hold, but this may be an ominous sign for the near-term.
Materials (NYSEARCA:XLB) – Abrupt Decline
Comments: Materials have rolled over, as realizations of emerging market weakness kicks in despite China growth acceleration. The sharpness of the move lends itself to a bounce, but it is concerning from the standpoint of a breakdown in commodity excitement.
Technology (NYSEARCA:XLK) – No Love
Comments: Technology has gone round-trip, hugely underperforming the broader S&P 500 (INDEXSP:.INX). The move is largely due to Apple's (NASDAQ:AAPL) weakness, but it does appear that a bottom may be near as the ratio hits support.
Across the board, intermarket trends for cyclical leaders remain exhausted, and defensive trades are staging a comeback. My firm's ATAC (Accelerated Time And Capital) models used for managing our mutual fund and separate accounts remain highly defensive as of last week, as the odds of a correction rise meaningfully right at the point the Dow hovers around 14,000. Unless a significant improvement occurs internally in the market in the coming days, the correction may indeed have started.
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.
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