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posted on 19 December 2016

Market And Sector Analysis 19 December 2016

Written by , Clarity Financial

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.

Update: As requested, I have added price momentum analysis for S&P 500, 400, & 600 indices.

If you have any suggestions or additions you would like to see, send me an email.

spy-tearsheet-121016


Sector Analysis

Comments

The market struggled last week plunging 1.46 points to finish the week down .06% after the Fed announced a rate hike for the first time in 2016. (#sarcasm alert). Financials continued to lead the charge the last week, and remain extremely overbought. Profit taking remains highly recommended. Small and Mid-cap stocks, Energy, Materials, 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.)

sector-candleglance-1-121616

sector-candleglance-2-121616

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.)

Over the last couple of weeks, as suggested, we have continued to hedge our long-equity positions with deeply out-of-favor sectors of the market (Bonds, REIT’s, Staples, Utilities) which paid off well during the volatility last week.

sector-actions

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-analysis-121716

(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.

As I have been warning over the last couple of months, the stronger dollar is, and will continue, to negatively impact emerging markets. Materials and Industrials are also losing momentum and should be pared back or hedged.

We are seeing a relative performance pickup in Bonds, Utilities, REIT’s, Staples and Healthcare.

Gold is on an all-out sell signal and should remain out of portfolios for now entirely.

Materials, Financials, Industrials, and Energy are pushing range extremes.

Everything is currently pointing to this being a very late stage advance, so profit taking, hedging, and rebalancing is strongly advised.

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