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:
The current market advance both looks, and feels, like the last leg of a market “melt up” as we previously witnessed at the end of 1999. How long it can last is anyone’s guess. However, importantly, it should be remembered that all good things do come to an end. Sometimes, those endings can be very disastrous to long-term investing objectives.This is why focusing on “risk controls” in the short-term, and avoiding subsequent major draw-downs, the long-term returns tend to take care of themselves.
For now…the bulls remain clearly in control.
Discretionary, Staples, Industrials, and Financials continued to lead advances as they are viewed as the biggest beneficiaries of the tax bill. The near parabolic move is dangerous. These sectors are now GROSSLY extended. Take some profits, rebalance holdings and move stops up to recent breakout levels.
Technology While it appeared Technology might have begun a consolidation or topping process previously, that is now over as the sector surged to new highs last week. The sector remains overbought, and the bounce off of support keeps the sector in a bullish trend.
Healthcare as I noted previously, the sector had slipped below its 50-day moving average, however, the “buy everything” mode of the market over the last week resolved that situation keeping health care on hold in portfolios for now. Move stops up to the 50-dma for now.
Energy – as I noted previously the positive backdrop developing in the energy sector on a technical basis. We added one-half of a tactical trading position to portfolios last week and will monitor it as we head into the end of the year. We are maintaining a tight stop-loss if the position fails to hold support.
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 along with the broader index struggled earlier this week on tax-reform concerns but rebounded at the end of the week. This is the second week in a row. Trends are positive which keeps allocations on hold but are too grossly extended currently to add positions.
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. Emerging markets are oversold, but the sector is struggling with its 50-dma.
Gold – Gold failed to hold above the 50-dma last week and sharply violated the 200-dma this past week as bullishness over the market erased concerns of the need for safety. Importantly, with no catalyst to put “fear” into the market, the 50-dma starting to weaken putting the current risk back to the downside. We continue to watch the commodity currently, but remain on the sidelines for now.
S&P Equal Weight & Dividend Stocks – As noted previously, both of these positions have simply gone parabolic as money is chasing yield currently. We have moved up stops and are looking to take profits and rebalance accordingly.
Bonds and REIT’s – With“tax reform” being passed by the Senate, rates should be ticking up punishing bonds and REIT’s. However, that simply is not the case as the bond market continues to suggest that estimates of “tax reform” related economic growth is simply wrong. We remain long these sectors and continue to add to them on weakness.
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:
Let me repeat from last week:
“The market continued to hold its bullish trend this past week despite a pickup in volatility. This type of market is extremely dangerous as when markets break, and then immediately rebound, it lulls investors into a high degree of complacency that stocks “simply can’t go down.” While we are in the seasonally strong period of the year, we remain cognizant of the underlying risk.”
Also, as noted above, and previously, I am still looking for the right setup to hedge portfolios over the next couple of weeks. The surge this past week is putting us into the “ballpark.” I will keep you apprised.
As noted, we added 1/2 of a tactical trading position in Energy after an improvement in performance and recent bullish change in the technical underpinnings.
We remain invested but are becoming highly concerned about the underlying risk. Our main goal remains capital preservation.
