Sunday, January 1, 2012

Something to Keep in Mind as 2012 Starts

New England Patriots go down 21-0 in the first quarter. Then they win 49-21. Just unreal. Home field throughout playoffs which is the ONLY way they have a chance at a Superbowl run with that defense they have on the field.

Something to Keep in Mind as 2012 Starts
The last 6 months of 2011 were a mess, not sure another way to describe it. Over that span some correlations really jumped out at me and watching those going forward is a key theme of mine.

In a post I did for the iBC Blogger network I looked at how cigarette company RAI was outperforming the SP 500 over the last 6 months. I remarked that I thought the distance between them on a graph was indicative of the risk on/risk off nature of things. Here is a up to date look of RAI vs the S&P 500 (6 month view):

The same can be seen in the Utilities sector and here is a 6 month comparison for the Utilities ETF XLU versus the S&P 500:

If there is going to be some kind of move up in the general markets, the gap between tobacco/utilities and the SPX will narrow. This does not mean that those safer sectors will drop big, it will just mean that they do not get bid up as hard as other risk is sought out.

Now for the twist that I want you to be aware of.

It's natural and expected that in a move to a more aggressive stance on the market, money will be pulled from defensives and put to chase after other assets. You know the names should that happen and the Nasdaq will lead the charge. The spread in the graphs above will tighten and maybe even cross given a strong enough move.

But one thing is worth watching in this dynamic.

Look to the far right of both graphs above again. Did you look close?

If prices are dropping for BOTH the defensives and the general markets then you have to respect that as a strong signal. In no way has that slight blip been confirmed, but you need to be aware of it.

2011 may be over but it was the year of "Max Pain" as Robert Sinn likes to call it. Should defensives and the markets keep dropping in unison it may get uncomfortable once again.

Added!: Cat update. That small kitty is now bigger than her bed!:

Have a good night.


David Batista said...

What a cute kitty! :)

And congrats to your Pats. Wow, what a come from behind that was! I couldn't believe my eyes, and could only shake my head. I'd be elated if I were a Pats fan . . . but at the same time extremely nervous. The heart can only take but so much of that kind of hijinks.

Happy New Year, my friend!

GawainsGhost said...

Another year, another medicocre Cowboys team. Exactly .500 over the last fifteen years. Sigh.

That was truly pathetic. Unprepared, undisciplined, unmotivated, a loser if there ever was one.

But at least all three of my mother's teams--the Texans, the Saints, the Broncos--made the playoffs. I wonder if you can imagine what the next few weeks are going to be like for me.

Jennifer Hillier said...

How can a guy with such an evil avatar have such a cute cat?

Great win for your Patriots. Maybe I'll start cheering for them! Maybe.

EconomicDisconnect said...

David, yes the drama in these Pats games are stomach churning.

Gawains, that was some weak effort last night, no other way to say it.

Jennifer, the cat is all for show!

farmland investments said...

Explain to me how a defensive coach like Bill Bellichick could field such a horrible defense?!

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