Written 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.
NEW! Performance Analysis
Sector Analysis
Last Tuesday, I discussed the sector rotation model and the inherent level of confusion currently. (For the series of charts leading to the one below, click here)
“Now, a new problem has emerged, “confusion.” With time wearing on, the hopes of a swift reform of the tax code, which would be the primary boost to the resurgence in profitability, has faded. Furthermore, the early surge in consumer confidence has yet to transform into stronger economic activity. As noted over the weekend Morgan Stanley’s Chief Economist Ellen Zentner wrote:
‘ARIA appears to have fallen off a cliff in April, with a 0.72% decline, the largest since December 2008.’
(Note: ARIA, is a monthly US macro indicator based on data collected through primary research on key US sectors such as consumer, autos, housing, employment, and business investment.)
This has shown up in a bit of a “cluster ****” as money is quickly jumping from once sector to the next trying to figure out what the next “trade” is going to be.”
“In the lead right now are sectors that are both “risk on” (ie Technology, Emerging Market and Discretionary) as well as the “risk off” sectors. (Utilities, Health Care and Staples).
Talk about confused.
The problem, of course, that both trades are unlikely to be right. Either the market is going to breakout to the upside with a clear participation in the ‘risk on’ stocks, or money will begin a rotation into the ‘risk off’ trade of bonds and defensive equities. “
Of course, on Wednesday, it was the “break to the downside” which occurred sending bond prices soaring.
Sector Review
As suggested on Tuesday, a downside break would send flows into defensive sectors. Staples and Utilities were the clear winners last week.
Discretionary, Technology, Health Care, and Industrials all took a hit last week but ended the week above their respective 50-dma’s.
Materials and Financials broke below their 50-dma’s. It will be important for these sectors to maintain their support levels.
Energy has triggered a major sector sell signal with the cross of the 50-dma below the 200-dma. Remain heavily underweight energy for the time being. The recent rally in oil prices has failed to provide much support for the sector last week which continues its downtrend for now.
Small and Mid-Cap stocks both broke their respective 50-dma’s which puts these areas in portfolios at risk for now. The failure to maintain previous strength from the post-election “Trump Trade” puts support levels into close focus. Stops should be maintained at March lows.
Emerging Markets and International Stocks continued their strength since their election lows as money continues to chase performance. There is a good bit of risk built into international stocks currently. We took profits a few weeks ago, but the recent extension suggests another round of rebalancing is likely wise. Take profits and rebalance sector weights but continue to hold these sectors but stop levels should be moved up to the 50-dma.
Gold remains out of favor. The short-term trading opportunity failed and long-term traders never got above $1300/oz to enter. See note on Gold to be posted on GEI this week.
S&P Dividend Stocks are flirting with key support levels currently after breaking below their 50-dma. With the sector oversold, hold current positions but maintain stops at the lows from last week.
Bonds and REIT’s had gotten oversold last week and found some support this week with the surge in the “risk off” trade as discussed above. Both sectors are trending positively but are struggling with major overhead resistance. A breakout of these two sectors will likely coincide with weakness in the broader market, so watch these sectors for clues as to what happens next.
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:
The bullish trend remains positive, which keeps us allocated on the long side of the market for now, but the weekly “sell signal” alert is not being dismissed.
We are currently evaluating short-term market action to see if there is an opportunity to allocate some of our retained cash into underweight equity positions currently as part of the rebalancing process. I would like to see some continued strength into next week for confirmation before adding additional risk. This is particularly the case as we move into the seasonally weaker months of the year. We are maintaining stops at recent support levels on all sectors and at 2325 on the S&P 500.
