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:
Discretionary, Technology, and Healthcare – continue to pace the way higher in the market over the last few weeks. We continue to hold our weightings in these sectors, outside of just trimming position sizes to account for gains for now. With the sectors VERY overbought and extended currently use pullbacks for adding to exposure or increasing target weights.
Staples, and Utilities – have regained strength after a very tough start to the year. As we stated last week, there is a movement to more defensive sectors of the market (late economic stage sectors) that is still occurring. Use pullbacks to support, and oversold conditions, to add exposure accordingly.
Financial, Energy, Industrial, and Material – while Industrial finally gained a bit of momentum due to earnings season, the risk of an ongoing, and acceleration of, tariffs and “trade wars” keeps us out of both the Industrial and Materials sector for now. However, with that said, Industrials performance is improving and on a pullback to support that doesn’t violate it, we may consider adding a small exposure. Energy’s recent slump successfully tested the 200-dma. With the sector oversold, a trading entry is available, but with the 50-dma just overhead stops should be placed at the recent lows. Financials continue to languish along support but not showing much in the way of strength to support overweighting the sector currently.
Small-Cap and Mid Cap continue to perform well and after adding exposure to these areas a few weeks ago, there is little to do currently. With these markets extremely overbought and extended, pullbacks to support is needed to add additional exposure.
Emerging and International Markets were removed in January from portfolios on the basis that “trade wars” and “rising rates” were not good for these groups. With the addition of the “Turkey Crisis,” ongoing tariffs, and trade wars, there is simply no reason to add “drag” to a portfolio currently. These two markets are likely to get much worse before they get better. Put stops on all positions.
Dividends and Equal weight continue to hold their own and we continue to hold our allocations to these “core holdings.” We will overweight these positions on a pullback to support that does not violate that level.
Gold – If you are still hanging onto Gold, we have been consistently providing stop loss levels and sell points since May of this year. These points have continued to decline. With gold very oversold on a short-term basis, if you are still long the metal, your stop has been lowered from $117 four weeks ago, to $111 this week. A rally sale point has also declined from the previous level of $121 to $114.
Bonds – This past week, bonds continued to rally as money looked for “safety” amid the concerns of a collapse in the Turkish Lira. The rally over the past two weeks establishes a series of rising bottoms for bonds AND we have now registered an important “BUY” signal for bonds as the 50-dma crosses back above the 200-dma. As noted previously, we remain out of trading positions currently but remain long “core” bond holdings mostly in floating rate and shorter duration exposure. However, with a “buy” signal in place, we will look to add trading positions back into portfolios as necessary.
REIT’s keep bouncing off the 50-dma like clockwork. Despite rising rates, the sector has continued to catch a share of money flows and the entire backdrop is bullish for REIT’s. However, with the sector very overbought, take profits and rebalance back to weight and look for pullbacks to support to add exposure.
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:
Over the last few weeks, I have discussed the increases to equity exposure in portfolios as the market’s momentum has continued to push higher. However, we have done this cautiously by using pullbacks to support that subsequently broke out above resistance to do so. As I stated last week:
“The recent corrective action was not sustained long enough to provide an opportunity to add to existing positions. However, we suspect over the next month or so that opportunity will present itself given what is happening globally. As long as the cluster of support at the 50- and 100-dma remains in place, which limits much of the downside risk currently, and pullback to support at 2800 will provide an opportunity to add further exposure and bring portfolios closer to target model weights.”
Over the past two weeks, the market did pull back to support at 2800 and subsequently broke out to new highs on Friday. With that, we will look to add equity exposure opportunistically over the next couple of weeks in accordance with the model allocations.
- New clients: Add 50% of target equity allocations.
- Equity Model: We sold three laggards last week (CVX, STZ, & EMN) and will replace with new positions opportunistically.
- Equity/ETF blended – Same as with the equity model.
- ETF Model: We will overweight core “domestic” indices by adding a pure S&P 500 index ETF to offset lack of international exposure. We remain overweight outperforming sectors to offset underweights in underperforming sectors.
- Option-Wrapped Equity Model sold CVX and will add two new positions opportunistically.
Again, we are moving cautiously. There is mounting evidence of short to intermediate-term risk of which we are very aware. However, the trend of the market remains positive, and we realize that short-term performance is just as important as long-term. It is always a challenge to marry both.
It is important to understand that when we add to our equity allocations, ALL purchases are initially “trades” that can, and will, be closed out quickly if they fail to work as anticipated. This is why we “step” into positions initially. Once a “trade” begins to work as anticipated, it is then brought to the appropriate portfolio weight and becomes a long-term investment. We will unwind these actions either by reducing, selling, or hedging, if the market environment changes for the worse.
