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posted on 24 December 2017

Market And Sector Analysis 23December 2017

Written by , Clarity Financial

Data Analysis Of The Market and Sectors For Traders


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S&P 500 Tear Sheet


Performance Analysis


ETF Model Relative Performance Analysis


Sector & Market Analysis:

As noted above by Michael Lebowitz, the current market advance both looks, and feels, like the last leg of a market “melt up" as we previously witnessed at the end of 1999. How long it can last is anyone’s guess. However, importantly, it should be remembered that all good things do come to an end. Sometimes, those endings can be very disastrous to long-term investing objectives.This is why focusing on “risk controls" in the short-term, and avoiding subsequent major draw-downs, the long-term returns tend to take care of themselves.

For now…the bulls remain clearly in control.

Every Sector Except Utilities - were in full-fledged party mode over the last week as the chase for year-end positioning took hold. The massive overbought conditions in discretionary, staples, materials and industrials need to be trimmed off. Financials and Health Care are extremely overbought as well. Look to rebalance risk next week on any post-Christmas strength.

Energy - as I noted two weeks ago, the positive backdrop was developing in the energy sector on a technical basis. We added one-half of a tactical trading position to portfolios two weeks which has paid off well this past week. We will continue to monitor it as we head into the end of the year. We are maintaining a tight stop-loss if the position fails to hold support.

Utilities, we remain long the sector for now and are looking to add weight to the sector as a hedge against a risk rotation in January. Trends remain positive and interest rates have likely peaked for the current advance.

Small and Mid-Cap stocks rallied this past week as “tax reform" was finally completed. Trends are positive which keeps allocations on hold but are too grossly extended currently to add positions.

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. Emerging markets continue to struggle with its 50-dma but did clear it last week. Hold positions for now.

Gold - Gold failed to hold above the 50-dma and sharply violated the 200-dma last week as bullishness over the market erased concerns of the need for safety. Importantly, with no catalyst to put “fear" into the market, the 50-dma starting to weaken putting the current risk back to the downside. We continue to watch the commodity currently, but remain on the sidelines for now.

S&P Equal Weight & Dividend Stocks - As noted previously, both of these positions have simply gone parabolic as money is chasing yield currently. We have moved up stops and are looking to take profits and rebalance accordingly.

Bonds and REIT’s - With“tax reform" being passed by the Senate, rates finally ticked up which punished bonds and REIT’s in the short-term. We remain long these sectors and will add to them on this weakness likely next week as a hedge against a “risk off" rotation.

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:

Also, as noted above, and previously, I am still looking for the right setup to hedge portfolios next week. The surge this past week is put us into the “ballpark." The strategy will be as follows:

  • Rebalance to target portfolio weights all “overweight" positions
  • Add exposure to bonds, utilities and REIT’s bringing allocations up to portfolio weight or slightly overweight.
  • Add a tactical trade of a short S&P 500 position to hedge risk.
  • Move up stops on all positions to current support levels.

We will update our positioning next week with actual changes, if any, should the opportunity present itself.

As noted, we added 1/2 of a tactical trading position in Energy two weeks ago after an improvement in performance and recent bullish change in the technical underpinnings.

We remain invested but are becoming highly concerned about the underlying risk. Our main goal remains capital preservation.

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