The current correction began in April, a beneath-the-surface, sector-by-sector rattle that’s now caught the attention of everyone.

Nobody sent out an invite so you can stop searching your inbox. You probably didn’t get a voicemail about this ahead of time either. Sentiment shifts quickly, irregardless of fundamental rhyme or reason, and no one tells you about it in advance.

At first Utilities and REITS and other so-called low beta sectors began to trail the market, flattening out during broad market rallies and ceding leadership to techs and banks. Then they began an outright decline, joined by junk bond ETFs and MLPs.

This went on for a few weeks and then began to be noticed broadly. We had had these divergences before between some sectors and the overall market – but each of these divergences had eventually resolved to the upside all winter and spring long. It was a maddening pattern for the bears – weakness would be detected in trannies or small-caps or whatever and it looked as though the rally was in danger. Then the herd would come thundering into the laggard sector and suck up every stock in sight, thus rendering these temporary divergences meaningless.

Not anymore.

There is substantial technical damage across many of the sectors and asset classes that had led the rally since Thanksgiving. The S&P 500 has just printed it’s first back-to-back weekly loss since the rally began and the beatings have begun to leave a mark.

Have you seen the Mortgage REITs lately? Absolute shitshow – and these things were pitched as risk-off bond equivalents by brokers all year.

Well actually they did. The COT index number turned negative several weeks back. The difficulty though was that the market continued to rise. This created a divergence that was noted, but made it very difficult initially to actually trade the information, until about 3/4 weeks ago, we went to market neutral positions only.

The result is that we are nicely positioned for a falling market should the correction actually take hold. If it doesn’t, well, we’re ready for the upside also.