Written by Lance Roberts, 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:
This bull market seems to be an unstoppable train. However, we have seen similar rallies previously from oversold conditions, and this one has all the same hallmarks that we are likely to the point where further gains are going to be much more difficult to come by.
With the current long-term MACD at very high levels, watch for a sell-signal as a good indication of a point to reduce overall portfolio risk.
Technology, Industrials, and Materials – continued to lead this past week. With these sectors now back to very overbought levels in the short-term, some profit taking is advised. However, maintain weightings as the momentum currently weighs in their favor.
Financials and Healthcare stumbled last week but remain in bullish trends. However, with the sectors very overbought and showing a bit of weakness, profit taking, as advised last week, remains a good idea.
Energy has mustered a decent bounce but the trends and backdrop remain sorely negative. With oil prices struggling at $52/share, the current price move is largely done for now. While the underlying technicals are beginning to improve, the sector must stay above the 50-dma while working off the extremely overbought condition that currently exists. A violation will likely return the sector back to it previous downtrend. We continue to remain out of the sector entirely currently, but if the recent improvement can reverse the negative trends we will add weight to portfolios.
Discretionary and Staples have been under pressure as the consumer weakness continues to spread through the underlying companies. That story is a macroeconomic story that is being ignored by the rest of the market currently, however, it will eventually be the “tail that wags to dog.” Remain long both sectors for now but watch major support lines.
Utilities, as noted last week, were VERY oversold and the pop in interest rates following the announcement of the Trump Tax Plan led to a violation of the 50-dma. However, with the reality of “Trump Tax Cuts” beginning to fade, money flows into Utilities have picked up. Stops should be moved up to recent lows and any violation of the 200-dma should be watched closely.
Small and Mid-Cap stocks despite stalling last week, remain extremely overbought. Stops should be moved up accordingly. The moves to new highs for both markets provides some impetus for the market’s push higher in the short-term. We took profits in both of these sectors as they are now pushing 4-standard deviation extremes of the moving averages.
Emerging Markets and International Stocks continue to hold support and money has been chasing performance in these sectors as of late. Remain long these sectors for now.
NOTE: Correlation between all markets is extremely high. What goes up together also comes down together.
Gold – Last week, the precious metal found support near the 200-dma and rallied into the end of last week. The markets are beginning to sniff out a failure of tax reform in the months ahead and falling inflation suggests a weaker economy ahead. As I have stated previously, we exited gold longs back in 2013 and have remained on the sidelines. The recent break above the long-term downtrend has gotten us looking closely at adding gold back into portfolios. With gold extremely overbought, we will look for a “dip” towards $1250/oz to add weight to portfolios.
S&P Dividend Stocks, after adding some additional exposure recently the index broke out to new highs. We are holding our positions for now with stops moved up to recent lows. Take some profits and rebalance accordingly. Dividend stocks have gotten WAY ahead of themselves currently as the yield chase continues.
Bonds and REIT’s after taking profits in bonds previously, I noted over the last two weeks that we had become much more aggressive bond buyers. That has paid off well with bond prices improving last week and interest rate sensitive REIT’s pushing higher. We will continue to add more exposure if rates push towards 2.5% which is our target for this reversal.
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:
See Notes Above.
We used the pop in interest rates to move cash management accounts, and larger cash holdings, into our cash allocation strategy providing for better yields. We also added some new bond exposure to accounts and are looking for additional opportunities if rates push higher over the next couple of weeks.
We remain extremely vigilant of the risk that we are undertaking by chasing markets at such extended levels, but our job is to make money as opportunities present themselves. Importantly, 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.
As always, we remain invested but are becoming highly concerned about the underlying risk. Our main goal remains capital preservation.
