Written by Lance Roberts, Clarity Financial
Data Analysis Of The Market and Sectors For Traders
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UNLOCKED – This week were are unlocking our market and sector analysis for you. This section is normally reversed solely for our RIA PRO Subscribers
S&P 500 Tear Sheet
Performance Analysis
ETF Model Relative Performance Analysis
Sector & Market Analysis:
Be sure and catch our updates on Major Markets (Monday) and Major Sectors (Tuesday) with updated buy/stop/sell levels
Sector-by-Sector
Looking at sectors on a “relative performance” basis to the S&P 500 we have seen some rotations in leadership over the last week.
Improving – Energy
Energy began to improve its performance as oil prices perked back up last week. With oil back to the higher end of its trend range, this is likely a good time to harvest some profits from the sector.
Current Positions: 1/2 Position in XLE
Outperforming – Technology, Industrials, Discretionary & Communications
Discretionary particularly picked up performance last week and joined the small group of sectors where the 50-dma has crossed bullishly. Industrials also gained ground on continued hopes for a trade resolution with China. These sectors are all overbought, so take some profits, but remain long for now.
Current Positions: XLI, XLY, XLC, XLK – Stops moved from 50- to 200-dma’s.
Weakening – Real Estate & Utilities
Lately, Utilities and Real Estate have been on a parabolic advance. Not surprisingly, they are taking a breather as money rotated to more offensive sectors last week. We have previously recommended taking profits in these sectors for now, which remains the advice again this week.
Current Position: XLU
Lagging – Healthcare, Staples, Financials & Basic Materials
Financials have been struggling as of late due to the inversion of the yield curve which impacts their profitability. Healthcare and Staples also weakened a bit this past week as money rotated from defense to offense in the market. Take profits and reduce back to portfolio weight as needed.
Current Positions: XLB, XLF, XLV, XLP – Stops remain at 50-dmas.
Market By Market
Small-Cap and Mid Cap – Both of these markets remain confined within the context of a broader downtrend. As we have noted over the last several weeks, these two sectors are more exposed to global economic weakness than their large-cap brethren so caution is advised. Take profits and reduce weightings on any rally next week until the backdrop begins to improve.
Current Position: None
Emerging, International & Total International Markets
As noted last week, Emerging Markets pulled back to its 200-dma after breaking above that resistance. We did add 1/2 position in EEM to portfolios three weeks ago understanding that in the short-term emerging markets were extremely overbought and likely to correct a bit. That corrective action is continuing and we need a breakout above the current consolidation to become more aggressive on the holding.
Major International & Total International shares DID finally break above their respective 200-dma’s on hope the worst of the global economic slowdown is now behind them. The pullback last week has brought the market back to test its 200-dma. It is critical support holds next week. Keep stops tight on existing positions, but no rush here to add new exposure.
Stops should remain tight at the running 50-dma which is also previous support.
Current Position: 1/2 position in EEM
Dividends, Market, and Equal Weight – These positions are our long-term “core” positions for the portfolio given that over the long-term markets do rise with respect to economic growth and inflation. Currently, the short-term bullish trend is positive and our core positions are providing the “base” around which we overweight/underweight our allocations based on our outlook.
Core holdings are currently at target portfolio weights.
Current Position: RSP, VYM, IVV
Gold – Despite the reversal of the Fed, the collapse of the yield curve, and concerns about global economic growth, Gold sold off last week and broke the rising trend of the 50-dma. Gold is oversold currently, but has really struggled to advance. There isn’t a compelling reason to add more to our holdings at this juncture. A move above $125 will make things more interesting.
Current Position: GDX (Gold Miners), IAU (Gold)
Bonds –
The big move two weeks ago was in Bonds. If you have been following our recommendations of adding bonds to portfolios over the last 13-months, this portion of the portfolio has performed well in offsetting market volatility. As noted previously, intermediate duration bonds remain on a buy signal after increasing exposure last month. However, they are now extremely overbought, so look for a pullback that holds 2.50% on the 10-year Treasury to increase exposure.
Current Positions: DBLTX, SHY, TFLO, GSY
High Yield Bonds, representative of the “risk on” chase for the markets, popped higher last week with the move higher in equities. International bonds, which are also high credit risk, are running akin to the markets. If you are long high yield or international bonds take profits now and rebalance risk back to normal portfolio weights. The current levels are not sustainable and there will be a price decline which will offer a better entry opportunity soon.
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:
There were no changes to portfolios last week:
With rising concerns over economic weakness the markets have consolidated over the last couple of weeks. With earnings season fast approaching, we are reviewing holdings to take profits, tighten up stops, and reduce risk.
A bad announcement or forecast can have an immediate and sharp impact on company stocks prices. However, in most cases we are carrying underweight exposure so we may get opportunities is some of our holdings to buy at cheaper prices as long as trends are holding.
- New clients: Will begin the onboarding process this coming week if the market continues to hold support at 2800.
- Equity Model: No changes – Reviewing for rebalancing as needed.
- ETF Model: No changes. – Reviewing for rebalancing as needed.
Note for new clients:
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.
