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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.

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.

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