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posted on 10 July 2017

Market And Sector Analysis 08 July 2017

by Lance Roberts, Clarity Financial

S&P 500 Tear Sheet

The “Tear Sheet" below is a “reference sheet" provide some historical context to markets, sectors, etc. and looking for deviations from historical extremes.

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

Performance Analysis

New! Thank you for all the comments on the performance analysis below. Due to many of the emails I got, I have swapped out the sector weight graph for a year-to-date performance range analysis. Keep the comments coming. (Email Me)

ETF Model Relative Performance Analysis

Sector Analysis

As I suggested last week, while the major indices remain within striking distance of all-time highs. The internal damage continued again this week.

Technology, Discretionary, Utilities, and Staples continued their recent weakness, with all sectors having now BROKEN their respective 50-dma’s. The correction does set up a potential trading opportunity provided support holds, but the break below the 50-dma raising a warning flag. If current supports in these sectors give way, we will recommend reducing overall portfolio weightings.

Financials, Health Care, Materials, and Industrials continue to catch rotation flows from the previous leaders. All of these sectors remain overbought so some profit-taking and rebalancing is advised.

Energy - Oil prices rallied last week, as I discussed in the previous newsletter, but failed at resistance. Furthermore, despite the rally in oil prices, energy stocks continue their downward trajectory. The supply of oil remains a problem with rig counts rising and economic weakness prevalent. With a major sector sell signal, and the cross of the 50-dma below the 200-dma, we remain out of the space for the time being. Use any rally to reduce exposure accordingly until the technical trends improve.

Small and Mid-Cap stocks regained their respective 50-dma’s which removes their warning signs but remained weak relative to the broader market. This keeps concern elevated at the moment, however, maintain exposure for now, but do so cautiously with stops at support.

Emerging Markets and International Stocks as noted last week:

“There is a good bit of risk built into international stocks currently. We took profits a few weeks ago, but the recent extension suggests another round of rebalancing is likely wise. Take profits and rebalance sector weights but continue to hold these sectors but stop levels should be moved up to the 50-dma. A pull back to support will provide an opportunity to rebalance holdings in the short-term. The consolidation in industrialized internal markets is bullish and a potential point to add exposure may be approaching."

The profit taking exercise proved prudent and the international exposure has pulled back to support at the 50-dma. However, the markets are still in a corrective process and not oversold as of yet. We are looking to add some additional exposure to the international area in portfolios but will wait and see if supports hold next week.

Gold - The failure of the precious metal at critical resistance of 1300/oz keeping us out of our long-term positions currently. The short-term trading positions were also stopped out on the drop below $1260/oz for now. With Gold back below the 50- AND 200-dma, we remain OUT of gold currently.

S&P Dividend Stocks, along with other more interest rate sensitive sectors, are being sold on the technical bounce in interest rates this past week. We have recommended previously taking profits in these sectors which now provides an opportunity to add exposure at a lower cost as this opportunity develops. Continue to hold current positions but maintain stops at the recent lows.

Bonds and REIT’s were hit with the technical bounce in rates. As noted above, we have been waiting for a reasonable opportunity to add bond, and interest rate sensitive, exposure to portfolios opportunistically. With these sectors now oversold, the opportunity to begin adding exposure is approaching. We are looking for yields to rise towards 2.4% to 2.5% ultimately, but will likely begin nibbling at exposure next week.

The table below shows thoughts on specific actions related to the current market environment.

(These are not recommendations or solicitations to take any action. This is for informational purposes only related to market extremes and contrarian positioning within portfolios. Use at your own risk and peril.)

Portfolio Update:

The bullish trend remains positive, which keeps us allocated on the long side of the market for now. However, more and more “red flags" are rising which suggests a bigger correction may be in the works over the next couple of months.

Two weeks ago, during the correction, we added modestly to our core holdings for the second time this year. However, we are still maintaining slightly higher levels of cash currently.

If the markets fail to hold their 50-dma next week, we are going to begin adding further hedges to portfolios and looking to reduce accelerated volatility in the market. Stops have been raised to trailing support levels and we continue to look for ways to “de-risk" portfolios at this late stage of a bull market advance.

We remain invested. We just remain cautious and highly aware of “risks" to capital.

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