Could Portuguese stocks, for which the Portuguese Stock Index 20 (PSI20) is a proxy, be leading the Dow Jones Industrial Average (DIA)?
I know it sounds weird. But sometimes stocks or indexes with lower liquidity can have this trait where they are more sensitive to any directional changes. And such might be the case when one considers what's happening in Portugal. The Portuguese index had bottomed back in June 2012 and never looked back. Yet lately, it's been getting weaker and weaker even while the Dow Jones continued plowing ahead clearly helped by Bernanke's monetary euphoria.
Now, there are a few specific reasons why Portugal can be weaker. The Cyprus events, where uninsured deposits got haircuts, could conceivably happen in Portugal at some point, so Portuguese banks have been suffering even harder than the market. And the Portuguese Constitutional Court is going to rule on some of the austerity measures present in Portugal's 2013 budget this Friday, with the overwhelming majority of people expecting the judges to rule unfavorably on the measures that cut the larger pensions (it's not a coincidence that these judges' pensions would also be affected when they retire).
Anyway, although this time there might be specific reasons for Portugal's weakness, it's still uncanny how every top in Portugal seems to anticipate weakness in the Dow Jones (and other U.S. indexes, obviously). Let me illustrate this:
Due to Portuguese market's more marginal and illiquid nature, it probably reflects slight changes in sentiment before its much more liquid brethren. There might thus be some significance to the fact that it always seems to top out a bit before the same thing happens in the U.S.