Inhaling & Exhaling

The market has a natural ebb and flow to it; a pattern of inhales and exhales. While we can never predict the exact duration or depth of the next ‘breath’, we can determine if it is inhaling or exhaling, and when we have reached a statistical extreme in either direction.
A look across the equity landscape clearly suggests that the weight of the evidence remains positive as all of the market indicators are positive at this time. The most notable observation over the last couple of weeks is that the equities market has progressed from moderately overbought to significantly overbought on a near-term basis.

The most recent market cycle has created quite a noticeable gap in performance between domestic and international assets. Keep in mind that International equity assets moved into favor back in April 2009, and remained an emphasized asset class until falling out of favor just a few weeks ago. The recent market cycle has produced new highs for much of the US market but very few of the International markets; the exception being developing markets. A snapshot of where the relative strength resided in June 2009 is very telling, as developed markets were at the bottom of the relative strength matrix and developing markets were situated atop the matrix, foretelling what has come to pass: the developing international markets outperforming the developed international markets.