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:
Let’s take a look at the sector breakdown.
Technology, Industrials, Materials, and Financials – improved this week. With these sectors now back to very overbought levels in the short-term, some profit taking is advised. The big advance in Industrials and Materials is the revival of the “Trump Trade” on hopes of tax reform and infrastructure spending. Both of these areas are at risk of disappointment from D.C. – take some money off the table.
Energy, as noted over the last three weeks, has mustered a decent bounce but the trends and backdrop remain sorely negative. Oil prices remain weak and there is little that suggests the damage is over yet. It is advised to continue using bounces in energy as a means to reduce exposure to the sector. 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.”
Utilities are once again VERY oversold and sitting on support. The recent pop in interest rates caused the risk off/on rotation is likely complete. We are looking for an opportunity to add weighting to interest rate sensitive sectors and holdings.
Small and Mid-Cap stocks continued their relative rotation pick up from last week. With both indices back to overbought look to take profits at any failure of new highs.
Emerging Markets and International Stocks continue to hold support and money has been chasing performance in these sectors as of late. Continue to hold positions for now but profit taking and rebalancing remains advisable.
Gold – As noted two weeks ago, Gold was able to break out of its trading range and its longer-term downtrend. As noted previously:
“With Gold once again very overbought, we will begin looking for an entry point on any weakness which does not reverse the recent breakout.”
Gold is very close to reversing that breakout, remain patient for now.
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.
Bonds and REIT’s finally had some profit taking hit these positions last week on the “risk” rotation. As stated last week:
“REIT’s are looking to break out of a long consolidation cycle and bonds remain favorable. Continue holding current positions for now but we are looking to take some profits and rebalance holdings.”
We did take profits in bonds and are looking for the next opportunity to add more exposure on a further pullback that does not violate bullish trends.
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:
As noted above, the overall bullish trend remains positive which keeps our portfolios allocated toward equity risk. We remain cautious of potential corrections giving the length of time the markets have been absent one. However, the trend remains the trend for now, and the recent recovery of the market above the 50-dma allowed us to allocate some capital in newer accounts to equity-related risk.
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.
Again, we remain invested but are becoming highly concerned about the underlying risk.
