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:
Two weeks ago, as the market struggled with its intermediate-term bullish trend line, I laid out two possible trajectories previously based on these support and resistance levels. I have updated the chart through Friday.
With the breakout above resistance, the “bullish bias” is back. However, we are watching the “sell signal” closely which has historically led to “false breakouts” in the past.
Let’s review sectors for opportunities.
Discretionary, Technology, Health Care, Industrials, and Financials broke back through their respective 50-dma with Technology breaking out to an all-time high. Bullish trends remain clearly intact, and after having recommended taking profits and reducing weightings, these sectors are exhibiting the best relative strength. Use opportunity to add exposure to portfolios to bring sectors back up to portfolio weights.
Materials and Energy – we were stopped out of our small additional Energy trade with the break back below the 200-dma, and we closed out our Materials trade on potential “tariff” risk. I am going to write an update on oil here soon, but the bearish developments in oil suggest lower prices for energy-related stocks. We will remain neutral on the sectors for now.
Staples and Utilities have continued to underperform in recent weeks. With the sectors very oversold on a longer-term basis look for a potential rotation to reduce weightings in portfolios for now. I suspect the opportunity for these sectors to shine is coming as the realization of weaker economic growth and deflationary pressures become more visible, but that could be later in the year.
Small Cap, Mid Cap, Emerging Markets, Equal Weight, and Dividend indices all broke back through their 50-dma last week and led the charge on Friday. We reduced weights in international exposure due to the likely impact to economic growth from “tariffs” on those markets. Look for opportunities to bring these positions back to full portfolio weight on weakness that does not violate important support levels.
Gold broke back below its 50-dma last week and has recently put in a “double top” further reinforcing overhead resistance from last September. We currently do not have exposure to gold, but if you are already long the metal, the backdrop overall remains bullish but a correctional phase may be approaching so taking profits is likely wise.
Bonds and REITs over the last couple of weeks, these two sectors looked to have bottomed and initiated early “buy” signals. Hold positions for now as interest rates have started to recognize the economic weakness that has shown up in the data as of late.
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:
Last Friday, the market failed at the 50-dma for the week which required us to add our “short market hedge” back into portfolios. As stated then:
“The position is not a ‘bearish bet’ on the market, but rather a ‘volatility reduction’ of our portfolio longs.”
With the market breaking out solidly back above the 50-dma this past Friday we are taking the following actions:
- Remove the “hedge” from portfolios and allow portfolios to run unconstrained for now.
- We have adjusted portfolio model weightings slightly to adjust for current sector rotations. As noted above, we will look to reweight the following positions in portfolios opportunistically:
- Technology
- Discretionary
- Health Care
- Financials
- Small/Mid Caps
- We are also tweaking duration in our bond portfolios by adding a floating rate fund to the model and removing our small holding of high yield exposure.
While most positions still remain within their bullish tolerance bands, we are making minor tweaks to allocations while remaining well aware of the longer-term risks. Furthermore, we remain keenly aware of the intermediate “sell signal” that currently persists which keeps us focused on risk management and capital preservation.
