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posted on 24 July 2017

Market And Sector Analysis 22 July 2017

Written by , Clarity Financial

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:

While the markets broke out to all-time highs this past week, that breakout was not uniform across the market.

Technology, Materials, Financials, Health Care, and Industrials all hit new highs this week. However, the action faded a bit on Friday as the momentum of the advance began to wane.

Staples, Utilities, and Discretionary improved but failed to set new highs. Utilities had strong performance as bond rates fell pushing interest rate sensitive issues higher.

Energy - I have written for the past few weeks:

“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."

The energy sector rallied this week above the 50-dma which presented a good opportunity to sell energy related exposure before closing back below resistance on Friday. With the OPEC oil deal now likely falling apart, something I suggested would happen earlier this year, oil prices crashed on Friday reinforcing resistance at $48.

Small and Mid-Cap stocks regained their respective 50-dma’s which removed their warning signs previously. This week, however, they both broke out of their long consolidation ranges pushing higher. Stops have now been moved up to the previous lows.

Emerging Markets and International Stocks as noted last week the bullish “buy point" occurred which allowed us to add international exposure to portfolios. However, the subsequent explosion of these sectors higher reduces the opportunity somewhat until there is some correction to work off the excessive overbought condition. Patience for now.

Gold - is once again trying to muster a rally from extremely oversold conditions. There is a good bit of work to do before this sector becomes interesting, but the move last week above the 200-dma does put the commodity back onto our radar for now.

S&P Dividend Stocks, after adding some additional exposure recently we are holding our positions for now with stops moved up to recent lows. With the sector becoming overbought, wait to add new exposure until a better opportunity presents itself.

Bonds and REIT’s the recent sell-off in these sectors to long-term support provided the reasonable opportunity to add bond, and interest rate sensitive, exposure to portfolios opportunistically." With additional exposure working well last week, we will wait and see what happens next before making any further changes.

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 last 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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