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, Materials, and Financials each regained their respective 50-dma which sets these sectors up for a retest of their old highs. While these sectors have the most bullish setup at the moment, rebalancing portfolio weights is still advisable.
Health Care is currently testing resistance at the 50-dma and while the sector did hold its 200-dma, which maintains its bullish trend, it underperformed on the recent market rally. This lag may be temporary, but it will be worth watching closely. Rebalance overweight positions for now.
Energy, Staples, and Utilities performed substantially worse during the decline and rebound in the markets which raises concerns over their positioning. While we suspect a “rising tide will lift all boats,” we will be for an opportunity to reduce holdings in these sectors and underweight them in portfolios for the time being.
Small Cap, Mid Cap, International, Equal Weight, and Dividend indices are all wrestling with their 50-dma. While the S&P 500 was able to clear that resistance last week, as noted above, that recovery has been focused in the heavy weighting of Technology. It will be important for the rest of the market to catch up with the S&P over the next few days if the broader bull market is going to continue.
Emerging Markets and Gold are both above their 50-dma and are near recent highs. We remain long emerging markets in portfolios. We currently do not have exposure to gold, but if you are already long the metal, the backdrop is bullish and improving.
Bonds and REITs showed some signs of life last week as the Fed made it clear they are going to be fully ready with additional QE in the future. This removed the “fear” of a lack of a buyer for bonds, and interest rate sensitive sectors bounced. We will underweight holdings on any failed rally to resistance.
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:
On Friday, we closed out the last of our “short market hedge.” The position was not a “bearish bet” on the market, but rather a “volatility reduction” of our portfolio longs. With the market back above the 50-dma we are going to allow our long-positions to run unconstrained for the time being but remain highly vigilant over the macro risks which remain.
Next week, we will look to rebalance positions to target weights, based on allocation models, if the market can hold above the 50-dma.
Despite the more bullish underpinnings in the short-term, the market still has a lot of work to do over the coming week. Furthermore, the risk of a continuing corrective process remains which keeps us 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 over the last two weeks 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.
