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 noted above, the consolidation continues. As earnings season comes to its conclusion, the market will turn its focus to the economic and geopolitical backdrop which has been less optimistic as of late. We remain invested but our caution levels remain elevated.
Discretionary stocks have been leading the market as of late. However, as we noted last week, pay close attention to the price compression currently forming. A downside break could lead to a rather sharp decline, so taking some profits from the sector remains advisable.
Energy led the decline last week as oil prices pushed fell back below $70/bbl. We got a bit of a bounce in the sector last week which is likely a good opportunity to harvest profits currently. As stated last week, we are likely not done with the correction yet particularly if the dollar continues to strengthen.
Technology is currently testing a double top from March of this year. A breakout here could be bullish for the sector, a failure will potentially be more problematic. We continue to carry an overweight position to the sector and will look to broaden exposure if a breakout does occur.
Financials, Industrials, Materials, and Health Care held above their respective 50-dma’s again last week and continue to consolidate. Materials and Health Care are currently the least attractive of the group with their respective 50-dma’s below their 200-dma’s. Remain underweight these two sectors for now.
Staples continue to languish and under-perform. We are still watching the sector for a sector rotation play, but it still remains too soon to add staples just yet. We are watching closely particularly as we move further into the summer months.
Utilities had a nice rally last week back above its 50-dma as money rotated into the Utilities (and Bonds) on a “risk off” trade. We remain out of the sector for now, but the rally last week has caught our attention. We need some confirmation of sustainability and we will continue to watch for an opportunity.
Small-Cap and Mid Cap continue to lead performance overall. After small caps broke out of a multi-top trading range, we now need a pull-back to add further exposure. While Mid-cap stocks have not broken out to all-time highs, a pullback that doesn’t violate support will also provide a better opportunity to increase exposure. After a strong push over the last few weeks, rebalance back to core weightings and look for a more opportunistic entry point in the future.
Emerging and International Markets remain lackluster in terms of performance currently. We previously removed our holdings in these markets and remain domestically focused at the moment. We will continue to monitor performance for an opportunity if it presents itself. Emerging markets, in particular, continue to lag due to a rising dollar and weak economic growth globally. Industrialized International is performing better but not by much. Remain domestically focused to reduce the drag on overall portfolio performance.
Dividends and Equal weight continue to hold their own and we continue to hold our allocations to these “core holdings.”
Gold as noted last week, gold failed to hold important support at the 200-dma. We currently do not have exposure to gold and have been out for a long time. We previously suggested that “if you are already long the metal hold for now. $123 on GLD is a hard stop and profits should be harvested on any failed rally back to the 200-dma.” Gold rallied and failed at the 200-dma. Take profits on positions, and lower your stop to last week’s bottom at $122.
Bonds and REITs – were the big winners last week. Just about the time you see articles declaring the “bond bull” dead, it is usually time to start buying interest rate sensitive sectors. We remain out of trading positions currently, but remain long “core” bond holdings mostly in floating rate and shorter duration exposure. REIT’s are much more interesting now with a break back above their 200-dma. With the sector back on a “buy signal” short-term we will look for an opportunity to add REIT’s back into our portfolios.
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/Client Update:
Nothing much changed as of last week, as markets still remain tightly range bound. The weakness in the market hasn’t violated any support, and we are still looking for an opportunity to average into our positions.
However, as stated in the main missive above, we are acutely aware of the rising geopolitical, economic and rate risks that are currently prevalent in the market. The recent pickup in price volatility has historically not been a good intermediate-term indicator of more bullish future price action.
As such we continue to carry an overweight position in cash, we remain underweight in equities and market weight in fixed income.
We have also taken action to shorten our bond-duration, add floating-rate holdings and minimize rate-related risk as much as possible.
We remain keenly aware of the intermediate-term “sell signal“ and we will continue to take actions to hedge risks and protect capital until those signals are reversed.
