Some Hidden Dark Messages via the Divergences in the Dow and Nasdaq and the Small-Cap Space

We keep seeing indicators of Tech stocks diverging from the rest of the market.

Key Takeaways

• Dow-Nasdaq Divergence Recalls The 2000 Market Peak: We have now seen the Dow rally with the Nasdaq slipping in three of the past four days. This is eerily similar to the divergence we saw unfold at the Tech bubble peak in the winter and spring of 2000. Also take note that bubble peaks generally follow what is happening with respect to the gap that has opened up between the junky Russell 2000 and the higher-quality S&P 600 index.

• Emerging Market Bonds Are Attracting Attention: No sooner did we publish our piece Beyond the Dollar: What’s Next for Emerging Market Bonds back on November 7^th than we saw the FT just run with A great inversion has redefined EM debt for investors. As a group, the EM bond market commands an average yield of 6%, a +250-basis-point premium to local currency yields in the Bloomberg Global Aggregate index. Keep in mind that nearly three-quarters of the EM bond universe is now investment grade — up from sub-60% two decades ago.

• Long Australia, Short Britain?: The U.K. printed very soft Q3 GDP data — not a good look ahead of what promises to be a very austere budget, while Australia posted some ripping October employment data. The case for a short pound/long Australian dollar barbell is very compelling.