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posted on 17 July 2017

Market And Sector Analysis 15 July 2017

Written by , 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.


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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:

Last week, we discussed some of the internal weakness that prevailed. Much of that was reversed this week as sectors recovered to regain their respective 50-dma’s.

Technology, Discretionary, Financials, Industrials, and Materials were the clear winners of the catch-up trade this week with each sector either reclaiming their 50-dma or setting new highs. Out of the group, Financials were the weakest as concerns over earnings rose.

Staples, Health Care, and Utilities improved slightly and didn’t participate as strongly as its counterparts. Utilities and Staples, in particular, remain below their 50-dma, but are oversold and holding supports. Pay attention to these latter two for further deterioration.

Energy - Oil prices rallied last week, as I discussed in the previous newsletter, but remain trapped below resistance. Furthermore, despite the rally in oil prices, energy stocks continue their downward trajectory. The major sector sell signal, and the cross of the 50-dma below the 200-dma, remains intact keeping us 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 and is worth repeating this 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."

That bullish “buy point" occurred this week, however, the explosion of these sectors higher reduces the opportunity somewhat. With the sectors extremely overbought, you can add exposure but do so cautiously.

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, as noted last 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."

Position weight can be added with the recent uptick.

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. We added bond exposure this past week and will look for further improvement to continue adding to portfolios.

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.

With the breakout of the market on Friday, we are again adding to our portfolio positions and increasing exposure again this coming week. We also added to our bond holdings as well last week as rates hit our buy targets.

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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