Written by Lance Roberts, Clarity Financial
Data Analysis Of The Market and Sectors For Traders
S&P 500 Tear Sheet
Performance Analysis
ETF Model Relative Performance Analysis
Weakness is showing up in “Risk” sectors and indices on a “relative performance basis” (compared to S&P 500) and shifting into more “Defensive” sectors such as Bonds, Real Estate, Staples, and Dividends.
Sector & Market Analysis:
This past week, the market stumbled slightly but did little to change the current trajectory of the market overall.
Technology – surged higher as money continues chasing a declining number of stocks. Given the massive weightings of FB, AMZN, GOOG, MSFT, AAPL, etc., their performance kept the overall indices afloat this past week. Given the extremely overbought condition currently, taking some profit and rebalancing holdings is warranted.
Staples have been under immense pressure recently, but had a sharp recovery this past week as investors “bought the dip.” The trend is becoming more negative with the 50-dma crossing the 200-dma. While the recovery last week was positive, underweighting the sector as recommended last week is prudent.
Basic Materials, Financials, and Industrials gave up ground last week as the “Trump Trade” based on “tax reform” looks much less likely currently. Trends are still positive but there is a risk to these sectors if legislation fails to pass. Take profits and rebalance risks just in case.
Healthcare has slipped below its 50-day moving average and is testing that resistance as of Friday. While the trend remains positive, the violation of the support suggests profit taking and rebalancing is warranted to reduce risk. Keep stops at the September lows.
Energy bounced off of the 200-dma as oil prices finally broke above $52/bbl and climbed to $57. With the 50-dma having crossed above the 200-dma, we are now looking to add energy back into portfolios after having been out of the sector since 2014.
With oil extremely extended, and at 3-standard deviations above the long-term mean, a level that has previously denoted corrections in the past, we are looking for a correction that does NOT violate recent support levels to ADD exposure to portfolios. Patience will provide a more risk-adjusted entry point.
Utilities, we remain long the sector and have moved stops up to the 50-dma. Trends remain positive and interest rates have likely peaked for the current advance.
Small and Mid-Cap stocks have stalled over the last couple of weeks and remain overbought. Stops should be moved up accordingly. We previously took some gains out of these sectors but remain long for now.
Emerging Markets and International Stocks have shown some weakness as of late in terms of momentum, but remain in a bullish trend overall. We remain long these markets for now but have moved up stops accordingly.
Gold – I noted previously the failure of precious metals to break back above the 50-dma. With the complete absence of FEAR of a potential crash, gold has temporarily “lost its luster” as a safe haven. We continue to watch the commodity currently, but remain on the sidelines for now.
S&P Dividend Stocks, after adding some additional exposure this summer, the index managed an extremely strong advance. We are holding our positions for now with stops moved up to $92. Take some profits and rebalance accordingly. Dividend stocks have gotten WAY ahead of themselves currently as the yield chase continues.
Bonds and REIT’s – bonds took a bit of a hit on Friday as rates jumped over hopes for “tax reform.” Such will likely be short-lived. We recently added a good bit of bond exposure to portfolios so we are holding positions for now. The bullish trend in REIT’s continue, so we are holding those positions as well and continue to look for pullbacks to add additional exposure.
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:
No changes this past week.
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.
I am now looking to begin building “Short S&P 500 and Nasdaq” positions into portfolios over the next few weeks as a hedge against a January decline as noted above. I will keep you advised as to changes in portfolios ahead if my expectations begin to come to fruition.
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, each week we raise trailing stop levels and 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.
