Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

The Lead-Lag Report: Health Care Diverges

By

There was some minor rotation last week in terms of leadership, with health care most notably diverging. Conditions continue to favor equities post Operation Twist.

PrintPRINT
MINYANVILLE ORIGINAL

Two roads diverged in a wood and I – I took the lone less traveled by, and that has made all the difference.
--Robert Frost

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 the full Lead-Lag Report, click here.

LEADERS: MINOR ROTATION

Technology (XLK) – Zzzzzzzz



Comments: Two weeks ago I stated that "I remain unconvinced though that a significant period of strength is likely to occur." The ratio has been flatlining in the past month or so. Time is needed to see which direction the trend will ultimately move

Health Care (XLV) – Bear Trade Divergence



Comments: Health care to my surprise has diverged meaningfully from other defensive areas of the market, presumably on expectations of the coming health care-reform ruling. Given that this sector is very news-dominant, I maintain that there are likely better sectors to play on the long side.

Europe, Australasia, and the Far East (EFA) – Leadership Here?



Comments: I noted before that "weakness in EFA appears to be nearing an end, though more time is needed to confirm leadership. This would be by all accounts a very bullish sign, as it suggests overseas weakness in developed economies is largely over in the near-term." An uptrend in the ratio appears to be forming, and could make for an interesting long allocation given how poorly developed markets outside the US have behaved.

LAGGARDS: RETEST

Consumer Staples (XLP) – Last Gasp



Comments: Consumer staples rallied post Operation Twist like utilities, but the ratio still looks likely to trend lower. A series of lower relative highs suggests more downtrend to come.

Industrials (XLI) – Renewed Weakness



Comments: Industrials took a leg lower, and remains now in its downtrend. However, given prolonged weakness a reversal may yet come any time now.

Treasury Inflation Protected Securities (IPE) – On the Verge of Trending Higher



Comments: The IPE/IEF price ratio is one way of seeing if inflation expectations are rising or falling within the bond market. When the ratio is trending higher, it means bets are occurring on rising prices ahead. When falling, deflation is the concern as nominal bonds become favored. Notice how sharply the ratio collapsed and hit support levels not seen since post October 3 low. A recovery may be in order, which would be a bullish sign for markets overall.

Conclusion

Market internals continue to point toward bullishness despite last week's Operation Twist stimulus disappointment. The conditions remain favorable for stocks and the reflation theme.

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.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE