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:
As expected, the markets did indeed bounce last week. But the bounce was not uniform across all sectors and markets, so let’s take a closer look.
Discretionary, Technology, Industrials, Health Care, and Financials each regained their respective 50-dma which sets these sectors up for a retest of their old highs. However, after a very sharp reversal, these sectors are quickly becoming extended which suggests this is a good time to rebalance portfolio weights.
Materials, Energy, Staples, and Utilities performed substantially worse raising concerns over their positioning. We will be watching for failed rallies next week to reduce holdings in this sectors and underweight them in portfolios for the time being.
With the exception of Emerging Markets and Gold, the 50-dma provided formidable resistance to the broader markets. We will need to see some further improvement next week, or we will likely see another bout of selling in the markets short-term.
Bonds and REITs appear to be attempting a recovery, along with the markets, we will look to underweight holdings on any failed rally to resistance.
As a side note, interest rates remain GROSSLY oversold which sets interest rate sensitive shares up for a very nice counter-trend rally. If we see a weakening in the economic or inflationary data over the next several weeks, such could lead to a fairly rapid reversal.
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.)
Currently, HOLD, all positions until we get a better understanding of the current correction as noted above. I will update strategy and actions on Tuesday.
Portfolio Update:
We previously, added to our short hedge when the market failed at the 50-dma.
We then sold that added position when the market found support at the 200-dma.
We will now look to do the following next week:
- Rebalance positions to target weights, based on allocation models, if the market holds above the 50-dma.
- Remove remaining hedges.
As we stated two weeks, this market has a lot of work to do over the coming week. Furthermore, there is a risk the recent rally was only the first part of a corrective process so we remain vigilant. Currently, everything remains within our longer-term tolerance bands for risk controls. While corrections certainly do not “feel” good, it is important we don’t let short-term pickups in volatility derail longer-term investment strategies.
The market rally last week quickly relieved a lot of the pressure on positions which gives us time to logically think about our next set of actions. As stated above, we are highly concerned about remaining market risk and remain focused on capital controls.
