Central Banks Complicate Market Reads
NEW YORK (TheStreet) -- Traditional indicators of market weakness are called into question by continued central bank stimulus. I see indicators that mark a divergence of momentum stocks and a weakening euro/yen currency pair.
In strong markets, both indicators are expected to outperform. Monday's action proved that while markets achieved record highs, defensive sectors led the way.
Global equity markets reached record highs Monday but fell into negative territory by day's end. The heavy selloff in the last few hours of U.S. trade looked to have hints of panic within.
Momentum stocks from technology and service sectors were notably weak the entire day. Meanwhile, the euro/yen currency pair did rally alongside equities, but sold off heavily at the end of U.S. trade.
Although in most markets this would be a cause for concern, it is hard to tell if bearish divergence will incite a selloff due to current monetary conditions.
Leading investors such as Carl Icahn see markets setting up for a strong correction lower, while many central bankers are attempting to limit downside moves by keeping interest rates as low as possible.