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posted on 11 February 2018

Market And Sector Analysis 10 February 2018

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:

The bloodbath continued this week which is interesting as just two weeks ago I penned:

“This is just getting a bit TOO extreme. Take a look at the sectors below. Every sector is pushing 2- and 3-standard deviations of longer-term moving averages.

This isn’t normal."

The reversal came hard.

Every Sector remained in sell-off mode last week, in particular on Friday, as money left the markets entirely. Every sector has now broken their 50-dma, while Energy, Staples, Financials, and Utilities have broken their 200-dma.

We will be looking to reduce equity weight on a “failed" counter-trend rally next week.

Let me be clear, there is a VERY high probability that recent lows will be tested, or broken, in the weeks ahead. Do not take unnecessary investment risk at the current time.

The same advice with sectors also applies to major markets. Whether it is small cap to mid cap to international or emerging markets - there has been no “safe spaces" for investors.

Again, as with the sectors above, we will be looking to rebalance portfolio risks on a failed rally over the next couple of weeks.

Again, recent lows will most likely be retested, or broken, which will be the key in determining whether or not this is just a “correction" or the start of something more.

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.)

Currently, HOLD, all positions until we get a better understanding of the current correction as noted above. I will update strategy and actions on Tuesday.

Portfolio Update:

As far as portfolios go, we continue to maintain our current positions.

  • We have taken profits in some of our positions that were most grossly extended.
  • We added to our short S&P 500 position at the failure of the 50-dma earlier this week but sold it as the market successfully tested support at the 200-dma. We still hold our original position and will add to it on a failed rally.
  • Interest rates, in the very short-term, are not cooperating with our interest rates sensitive exposure and we are monitoring those positions very closely for our next actions. These are small relative to our overall positioning, but are weighing on performance currently.

As we stated last week, this is what we are looking for to drive our next set of portfolio actions:

  • If the market rallies back and sets a new closing high, the bullish trend will be confirmed and equity allocations will remain at target levels and hedges removed.
  • If the market rallies back BUT FAILS to set a new high, a series of actions will take place.
    • At the point of rally failure, portfolio hedges will be modestly increased.
    • If the subsequent decline breaks the previous low, the hedges will be further increased and tactical trading long positions will be reduced.

Currently, everything remains within our longer-term tolerance bands for risk controls. While corrections certainly do not “feel" good, it is important we don’t let short-term pickups in volatility derail longer-term investment strategies.

While positions are certainly under-pressure currently, we are monitoring them closely. We do not recommend making wholesale changes to investments based on a market correction which remains well confined to a long-term bullish trend. We are highly concerned about the underlying risk and remain focused on capital controls.

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