by Lance Roberts, Clarity Financial
S&P 500 Tear Sheet
The “Tear Sheet” below is a “reference sheet” provide some historical context to markets, sectors, etc. and looking for deviations from historical extremes.
If you have any suggestions or additions you would like to see, send me an email.
Sector Analysis
Despite the rout in interest rate sensitive sectors of the market last week, the sector rotation continues currently with only a couple of exceptions.
Technology and Discretionary picked up steam last week moving from weakening back into leading for the moment.
Industrials, Materials, Financials, Small and Mid-Cap stocks continued to weaken in terms of relative performance.
Energy continued to struggle after breaking its 50-dma and is now flirting with breaking its 200-dma. The big risk right now is a failure of oil prices (West Texas Intermediate Crude) to hold $48/bbl. A failure at that level will likely bring a lot more selling into the commodity putting further downward pressure on the energy sector.
Utilities, Healthcare, and Staples just had the 50-dma cross back above the 200-dma suggesting a much better buying opportunity on sector pullbacks in the future. We will be looking to add to our current holdings on such an opportunity.
Emerging Markets, International, and Dividend Yield Stocks are again very overbought. The bull trend is still intact but some profit taking and rebalancing is advised.
As noted Small-Cap and Mid-Cap stocks are testing their 50-dma’s. Neither are oversold currently, so watch for further deterioration.
Bonds and REIT’s got oversold last week and performance improved this past week. If the broad markets run into trouble look for a continued rotation in the “safety trade.”
Overbought conditions exist almost unilaterally across the entire complex suggesting a higher risk/reward condition currently until a correction occurs. Due to this condition, we did rebalance portfolio weightings three weeks ago to raise some cash. As noted, we are not adding any new equity exposure currently for this reason. We are, however, actively buying individual bonds for portfolios.
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:
After hedging our long-equity positions 13-weeks ago with deeply out-of-favor sectors of the market (Bonds, REIT’s, Staples, Utilities, Health Care and Staples) we did rebalance some of our long-term CORE equity holdings back to original portfolio weightings harvesting a bit of liquidity.
The short-term bullish trend is still very positive which keeps us allocated on the long-side of the market. HOWEVER, the technical setup required for an increase in equity risk in portfolios currently is NOT FAVORABLE currently.
We continue to maintain very tight trailing stops as the mid to longer-term dynamics of the market continue to remain very unfavorable as well.
Rebalancing remains strongly advised.
