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posted on 12 December 2016

Market And Sector Analysis 12 December 2016

Written by , Clarity Financial

Data Analysis Of The Market & Sectors For Traders

S&P 500 Tear Sheet

Thank you for your recent suggestions, while not all requests are possible to fulfill due to data limitations, I do appreciate the input. We are working on adding some momentum indicators to the tear sheet. If you have any suggestions or additions you would like to see, send me an email.

spy-tearsheet-121016


Sector Analysis

Comments

While the markets seemed to rally broadly last week, such was really not the case when we looking at individual areas. Financials continued to lead the charge the last week, and are extremely overbought. Profit taking is highly recommended. Small and Mid-cap stocks, Energy (on oil cut deal from OPEC) and Industrials outperformed the index as well. The problem, as stated above, is that a stronger dollar and higher interest rates will likely hamper this optimism sooner rather than later. This is particularly the case with Small and Mid-Cap companies that are the most susceptible to monetary tightening.

(Note: I have changed the sector and major market analysis charts to a 50/200 DMA crossover signal and embedded an overbought/sold indicator.)

sectors-1-121016

sectors-2-121016

The table below shows thoughts on specific actions related to the current market environment. (These are not recommendations, just ideas related to market extremes and contrarian positioning within portfolios. Use at your own risk and peril.)

sector-recommendations-121016

The table below shows the relative performance of each sector as compared to the S&P 500 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-relative-performance-121016

(Note: The buy/sell signal at the far right is a binary result based on the crossover of the short and long-term moving averages and is not a specific recommendation.)

The numbers of sectors on SELL signals is INCREASING despite the market melt-up suggesting a much narrower overall advance than major indices would suggest. This is typical of a late-stage melt-up rally so caution is advised.

Utilities, REIT’s, Staples, Bonds, Gold, and Healthcare have remained under pressure this past week. While Basic Materials, Financials, Industrials and Energy are beginning to push extremes.

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.

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