econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 20 November 2016

Monday Morning Call 21 November

Written by , Clarity Financial

Starting this weekend, I will be adding an S&P 500 Tear Sheet which I have been working on with my friends at Zack’s Research. If you have any suggestions or additions you would like to see, send me an email.

sp500-tearsheet-111916-2


Model Update

S.A.R.M. Sector Analysis & Weighting

While the markets seemed to rally broadly last week, such was really not the case when we look at individual areas.

While Discretionary, Industrials, Materials, and Financials rallied sharply post the election on a bet of a “reflation" trade, only Industrials and Financials substantially broke out to new highs. The problem, as stated above, is that a stronger dollar and higher interest rates will likely hamper this optimism sooner rather than later.

sp-sectors-1-111916

In the broader markets, Small and Mid-Caps surged on this same bet. Unfortunately, as stated above, these two areas are also the MOST susceptible to the negative impacts of exports and carrying costs. Profits should be taken now.

sp-sectors-2-111916

Let’s take a look at the equal weighted portfolio model.

(Note: This is an equally weighted model example and may differ from discussions of overweighting/underweighting specific sectors or holdings.)

sarm-modelallocation-111916

The overall model still remains underweight target allocations. This has been due to the inability of the markets to generate a reasonable risk/reward setup to take on more aggressive equity exposure at this time.

However, the rally last week which pushed the markets back above the 50-dma keeps portfolios allocated at model weights. Provided the markets can reduce the current overbought condition, without triggering further “sell signals,"model allocations will be able to be increased for the seasonally strong period.

Relative performance of each sector of the model as compared to the S&P 500 is shown below. The table compares each position in the model relative to the benchmark over a 1, 4, 12, 24 and 52-week basis.

Historically speaking, sectors that are leading the markets higher continue to do so in the short-term and vice-versa. The relative improvement or weakness of each sector relative to index over time can show where money is flowing into and out of. Normally, these performance changes signal a change that lasts several weeks.

sarm-relativeperformance-111916

The broad spectrum of underperformance in recent months now beginning to improve somewhat, and the best opportunities are likely to come from a reversal trade as assets flow from “risk" back to “safety." This will likely occur during the first two weeks of December.

Notice in the next to the last column to the right, the majority of sectors which have previously been pushing extreme levels of deviation from their long-term moving average, have corrected much of those extremes. Furthermore, previously all areas were on long-term buy signals but continued weakness in the markets, combined with a loss of momentum, have eroded much of the previous strength.

There is a broad deterioration across sector performance which suggests overall weakness in the markets will likely continue in the near-term. Some caution is currently advised as the market has now been split distinctively between the “risk on"and “safety" trade as shown below in the “spaghetti" chart, via StockCharts.

sarm-rotation-111916

sarm-rotation-table-111916

Utilities, REIT’s, Staples, Materials, Bonds, Gold, and Healthcare have remained under pressure this past week.

Importantly, notice the cluster of assets that are grossly underperforming the S&P 500 currently. THIS DOES NOT LAST LONG and tends to historically lead to rather swift reversions in the trade. Everything is currently pointing to this being the case so profit taking and rebalancing is strongly advised.

As I have stated over the last couple of weeks:

“With the rise in rates largely done, sectors with the most benefit from falling rates look reasonable.

The opposite holds true for those sectors that are adversely affected by a stronger dollar higher rates. With dollar headwind still intact, and the rate rise grossly extended, profit taking in Small-Cap, Mid-Cap, Emerging Markets, International and Energy stocks seems logical.

While the rise in rates this past week due to the unexpected victory by Donald Trump in the Presidential election, it has only served to reinforce positioning in lagging areas of the market for a “reversion" trade over the next few weeks.

Also, as I stated last week:

“I have been recommending taking profits in the Technology sector. This was due to the extreme levels of outperformance of that sector which has begun to fade. The rotation out of technology is likely not complete yet and brings into focus extremely oversold sectors such as Health Care, Utilities and Staples as potential candidates."

That advice remains this week as well.

The risk-adjusted equally weighted model has been increased to 75%. However, the markets need to break above the previous consolidation range to remove resistance to a further advance.

sarm-model-111916

Such an increase will change model allocations to:

  • 20% Cash

  • 35% Bonds

  • 45% in Equities.

As always, this is just a guide, not a recommendation. It is completely OKAY if your current allocation to cash is different based on your personal risk tolerance, time frames, and goals.

For longer-term investors, we still need to see improvement in the fundamental and economic backdrop to support the resumption of a long-term bullish trend. Currently, there is no evidence of that occurring.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Investing


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Angst in America, Part 5: The Crisis We Can’t Muddle Through
Was Marx Right?
News Blog
21 April 2017: ECRI's WLI Growth Index Continues to Slow
Final April 2017 Michigan Consumer Sentiment Continues Positive Trend
April 2017 Chicago Purchasing Managers Barometer New Orders Close To Three-Year High
Advance Estimate 1Q2017 GDP Quarter-over-Quarter Growth at 0.7 Percent.
Rail Week Ending 22 April 2017: Marginally Slower Week
March 2017 Median Household Income Not Significantly Different
Infographic Of The Day: The Largest Company Headquartered In Each State
Early Headlines: Asia Stocks Down, Dollar, Oil, And Gold All Up, Trump Will Pay ACA $, State Dept To Cut 9%, Trump Tax Plan, UK House Prices Drop, France GDP Growth Slows, And More
What Americans Shop For With Coupons Online
Fact Check: Are A Million African Migrants Already On Their Way To Europe?
Doctor Google Will See You Now
What We Read Today 27 April 2017
March 2017 Philly Fed Coincident Index Ticks Marginally Up
Investing Blog
Think Differently For Better Trading Results
Facebook Is Coming After Snapchat From All Sides
Opinion Blog
Trump's Tax Plan Is Brilliant Politics And Even Better Economics
Facts Are Not Always More Important Than Opinions: Here's Why
Precious Metals Blog
A New Age For Gold
Live Markets
28Apr2017 Pre-Market Commentary: Wall Street Expected Top Open Fractionally Higher, But Trading Will Mirror Yesterday's Session And Remain In A Tight Band, Crude Prices Starting To Move Upward
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved