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posted on 19 November 2017

Market And Sector Analysis 18 November 2017

Written by , Clarity Financial

Data Analysis Of The Market & Sectors For Traders


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S&P 500 Tear Sheet


Performance Analysis


ETF Model Relative Performance Analysis

Weakness is showing up in “Risk" sectors and indices on a “relative performance basis" (compared to S&P 500) and shifting into more “Defensive" sectors such as Bonds, Real Estate, Staples, and Dividends.


Sector & Market Analysis:

For a second week running, the market stumbled slightly. However, had it not been for the huge surge on Thursday with the passage of the GOP tax bill, the end result would have been worse. Nonetheless, there has been no change to the current trajectory of the market overall.

Discretionary, Staples were the best performing sectors this past week as money chased recent underperformance, and WMT’s earnings, to position for year-end shopping sprees. It is quite likely retailers will be disappointed, but we will wait and see.

Technology took a breather this past week but remains near highs. It appears Technology may have begun a consolidation or topping process. We will need to wait to see how the current price action resolves itself before taking action within the sector.

Basic Materials, Financials, and Industrials despite passage of the “tax bill" by the House, the sectors most related to the tax-reform based “Trump Trade" continue to underperform. Trends are still positive but there is a risk to these sectors currently. Last week we recommended taking profits and rebalance risks. That remains prudent current with stops moved up to recent lows in each sector.

Healthcare has slipped below its 50-day moving average and has struggled last week. While the trend remains positive, the violation of the support suggests profit taking and rebalancing is warranted to reduce risk. Move stops up to recent lows.

Energy - the recent bounce in Energy, as feared, turned out to be a “head-fake" with prices falling back below the 50-dma. However, prices are once again trapped between the 50 and 200-dma. The positive is the backdrop is much more positive with the 50-dma having crossed above the 200-dma, We are looking to add energy back into portfolios after having been out of the sector since 2014.

Utilities, we remain long the sector and have moved stops up to the 50-dma. Trends remain positive and interest rates have likely peaked for the current advance.

Small and Mid-Cap stocks rebounded sharply off supports last week after threating to break down. We did harvest some profits last week but remain long for now.

Emerging Markets and International Stocks have shown some weakness as of late in terms of momentum, but remain in a bullish trend overall. We remain long these markets for now but have moved up stops accordingly.

Gold - Gold broke above the 50-dma last week which was bullish, but remains confined in sideways trend. With the 50-dma starting to weaken, and the commodity very overbought currently, the risk is to the downside currently. We continue to watch the commodity currently, but remain on the sidelines for now.

NEW! S&P Equal Weight - In our “core portfolios" we carry an equal weighting of both the S&P 500 dividend index and the S&P 500 equal-weight index. This balance gives us historically better performance, lower volatility and a higher yield than just carrying the S&P 500 index. I have added this analysis permanently going forward. The equal-weighted index pushed higher last week and is now testing old highs. In a future report, I will cover our strategy in more detail.

S&P Dividend Stocks, after adding some additional exposure this summer, the index managed an extremely strong advance. I noted previously that we are holding our positions for now with stops moved up to $92 and that we did take some profits and rebalanced accordingly. The recent correction tested support and turned up confirming the bullish trend, we remain long.

Bonds and REIT’s - Despite“tax reform" being passed by the House, rates declined last week signaling that either a belief “tax reform" will become a reality is fading, or the nonsense that tax reform will create surging inflation, growth and interest rates is becoming more apparent. The bullish trend in Bonds and REIT’s continues so we will continue looking for pullbacks to add additional exposure.

Sector Recommendations:

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:

Action: Trimmed holdings in Mid/Small Cap exposure on the rally.

While the market continued to hold its bullish trend this week, the internal deterioration continued to build. While we are heading into the seasonally strong period of the year, we remain cognizant of the underlying risk. As I stated last week:

“I am now looking to begin building ‘Short S&P 500 and Nasdaq’ positions into portfolios over the next few weeks as a hedge against a January decline as noted above. I will keep you advised as to changes in portfolios ahead if my expectations begin to come to fruition."

That analysis continues.

As always, we remain invested but are becoming highly concerned about the underlying risk. Our main goal remains capital preservation.

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