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:
With the “sell signal” firmly in place on a short-term basis, the selling pressure has continued to press prices lower over the past week. As I noted last week:
“The market needs to gain some solid footing next week, or weakness could become more pervasive.”
Such, turned out to be case. Let’s review the major market sectors.
Discretionary, Technology, Industrials, and Financials after a brief rally attempt, all of these sectors broke back down through their respective 50-dma’s. The recent “breakout” of Technology, turned out to be a massive ‘head fake,” and is currently threatening to break below its bullish trend. Each of these sectors do remain in their bullish trend, but are NOT oversold currently which provides enough room for a test of their respective 200-dma’s over the next couple of weeks. Take profits and reduce weightings accordingly.
Health Care, Materials, and Energy – we were stopped out of our small additional Energy trade with the previous break below the 200-dma, and continue to recommend under-weighting the sector for now. The push higher in oil prices is likely not sustainable and energy stock prices are likely reflecting the same. We also closed out our Materials and Industrials trade on “tariff” risks. Health Care has now also broken the 200-dma suggesting reducing weights there as well.
Staples – our stop level was triggered on Staples last week and we will be eliminating exposure to the sector on a rally. Utilities have continued to under-perform in recent weeks, but has been improving as of late with a break back above the 50-dma. We are not recommending adding to the position yet, but we are watching to see what happens next. Stops are set at recent lows.
Small Cap, Mid Cap, Emerging Markets, Equal Weight, and Dividend indices all broke back through their 50-dma last week with Dividend stocks breaking the 200-dma. Two weeks ago, we removed international and emerging market exposure due to the likely impact to economic growth from “tariffs” on those markets. That reduction helped hedge risk this past week.
Gold continues its volatile back-and-forth trade but remains confined to a downtrend currently. We currently do not have exposure to gold, but if you are already long the metal, we previously recommended that while the backdrop overall remains bullish, the correctional phase continues so taking profits on rallies remains prudent.
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 week I wrote:
“We continue to monitor the markets carefully as risk has clearly risen since February. However, with the bullish trend clearly intact, we don’t want to be overly cautious. While the level of investor optimism is high, and more indicative of turning points in the market, such does not mean it will happen immediately. With the weakness that prevailed last week, a rally early next week off of the 50-dma will not be surprising.”
With a brief rally early in the week, the Trump Administration push of “tariffs” was more than the market could bear. The break down at the end of the week has pushed the market to a short-term, oversold condition, and is testing support at the 200-dma.
It is crucially important the market maintains support at current levels and musters a rally next week. After having reduced exposure to “tariff” related areas a couple of weeks ago (materials, emerging and international markets), we will use any rally in the next week or so to further reduce equity risk exposure in portfolios. We will also look to add additional hedges to the portfolio on any rally that fails at overhead resistance.
With portfolios already underweight equity and overweight cash, we will make further adjustments to allocations as longer-term risks have clearly risen. Furthermore, we remain keenly aware of the intermediate “sell signal“ which has now been “confirmed” by the recent market breakdown. We will take actions to further hedge risks and protect capital until those signals are reversed.
