By Michael Gayed

"Combine the extremes, and you will have the true center." - Karl Wilhelm Friedrich Schlegel



) -- Followers of my writings online know that I have been vastly bullish since 2012 began, with the exception of the April-May "mini-correction" that shook investor confidence but at the same time ended up being a phenomenal buying opportunity, with hindsight.

Equities have continued to surprise most investors, producing real returns considerably higher than average. The reasoning for this is irrelevant; whether due to organic or forced reflation, price has remained the key determinant of price itself.

Yet, many still refuse to believe. As October has started, various intermarket trends have shown deterioration. Despite this, broad market averages appear to be "downwardly sticky."

Aside from the earnings story and uncertainty over the elections, many have refused to play the market because of fears of a Middle East conflict between Israel and Iran. I hear this continuously from prospective investors who call about how our buy and rotate strategies used for managing our mutual fund and separate accounts might behave on such an event.

If this should happen, could markets correct substantially? It is certainly possible. However, price thinks an imminent conflict is unlikely.

Every week I run a screen on my list of over 1,000 ETFs/ETNs to identify which areas of the investable landscape are showing extreme movement. The idea behind doing this is to get a sense of what opposite ends of the performance spectrum may be signaling about investor sentiment going forward.

Take a look below at those ETFs furthest above (extreme winners) and furthest below (extreme losers) their respective 20-day moving averages.

Israel, the Middle East, and Oil

There is a certain message occurring in the two lists above which I think is incredibly important to stress regarding fear over an oil spike and Middle East conflict. Notice that the EIS is among the extreme winners list, while energy related ETFs such as TAN, URA, PBW, and XES are among the extreme losers.

The polarization here is striking. Money seems to be betting that the fear premium in Oil may be unjustified, as Israel's stocks rise at the same time energy stocks fall. If you believe somewhat in the "wisdom of crowds," this may be a very important tell about how markets are viewing the prospects for an oil spike.

India and China

Other noticeably areas here worth focusing on? As the winner side, natural gas (UNG) continues to get a bid, and money has aggressively been put back to work in India following government reform measures taken by Prime Minister Singh. Both the stocks side (EPI) and currency side (ICN) saw strong gains in the past rolling month. This in turn may explain why gold miners (GDX) are showing up on the list given the demand that comes from India for gold, particularly when the Rupee strengthens.


Perhaps most surprising among the list of extreme losers is the number of Real Estate Investment Trusts that have exhibited weakness, despite the

Federal Reserve's

QE3 program, which one would think would benefit real estate stocks on targeting mortgage rates. It remains to be seen what might be causing this weakness, but I suspect its a "buy the rumor, sell the news" type of reaction to prices.

Putting it all Together

The most interesting price action from this week's extreme movers message is the behavior of Israel and oil, which is sending a clear message to not worry about a coming Middle East conflict.

Rather than trading on that for the long side, it looks like India and gold may be breakout candidates. For those using a potential Middle East strike as a reason to be bearish, it might be worth re-considering that idea in the face of very recent price movement.

At the time of publication the author had no position in any of the stocks mentioned.

Follow @PensionPartners

This article was written by an independent contributor, separate from TheStreet's regular news coverage.