August 18th 2013: Is junk the new high-beta?

We could talk about alot of things this week:
1) The continued dramatic weakness in commercial real estate (something I flagged last time)
2) The amazing run that AAPL has had lately pushing prices back to pre-2013 levels and buoying the Q's (see older post for my take on AAPL as it starting to turn)
3) The big push higher in GDX (also something that I flagged earlier)

But that's all old news.

What was most surprising to me this week was the relative outperformance of Europe while the SPY's were breaking down - especially Italy.  Yes, Italy.  The country that the media would have had you to believe was going to take down Europe and by extension kill the nascent recovery in the US, speed China's demise, and send the world into global economic recession.  That Italy!  (I try to avoid reading the news because it's misleading [at best], but sometimes a little bit of news slips in).

Here's what I see from the chart...
1) Price is breaking out of a box.
2)  MA's are trending up.
3) Price is above the Chandelier Exit Line
4) Elder Impuse Bars are green
5) RSI(2) is 99+
6) FORCE(2) is green

Pretty impressive stuff!  The only negatives that I see is the lower peak in FORCE (vs. the April surge) which is due to the below average volume.  This could be a seasonal issue as I understand that EVERYONE in Italy is on vacation in August (which makes me wonder how anything gets done...).

I'd rather not be long Italy because of political risk, but VGK and EZU are two strong Europe-based ETFs that are also outperforming vs. the $SPX.  It's a very interesting divergence to see Europe leading the US when so often it's been pulling the US indexes down.  I would expect Europe to lead again once the SPY's recover.

Another aspect to consider is that junk is leading now simply because of rotation.  Gold miners, Italy, and other chronic underperformers are suddenly getting a bid.  Regardless of the reasons, the important part is that they are moving higher.

Here's the chart...

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http://stockcharts.com/public/1109955