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
Technical Composite
Note: The technical gauge bounced from the lowest level since both the “Dot.com” and “Financial Crisis.” However, note the gauge bottoms BEFORE the market bottoms. In 2002, lows were retested. In 2008, there was an additional 22% decline in early 2009.
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
Finally, the markets bounced this past week.
However, don’t get too excited; there has been a tremendous amount of technical damage done which keeps us on the sidelines for now.
Improving – Discretionary (XLY), and Real Estate (XLRE)
We previously reduced our weightings to Real Estate and liquidated Discretionary entirely over concerns of the virus and impact on the economy. No change this week. We are getting more interested in REITs again, but are going to select individual holdings versus the ETF due to leverage concerns in the REITs.
Discretionary is going to remain under pressure due to people being able to go out and shop. This sector will eventually get a bid, so we are watching it, but we need to see an eventual end to the isolation of consumers.
Current Positions: No Positions
Outperforming – Technology (XLK), Communications (XLC), Staples (XLP), Healthcare (XLV), and Utilities (XLU)
Early last week, we shifted exposures in portfolios and added to our Technology and Communications sectors, bringing them up to weight. We also added QQQ, which was closed out on Friday.
Current Positions: XLK, XLC, 1/2 weight XLP, XLV
Weakening – None
No sectors in this quadrant.
Current Position: None
Lagging – Industrials (XLI), Financials (XLF), Materials (XLB), and Energy (XLE)
No change from last week, with the exception that performance continued to be worse than the overall market.
These sectors are THE most sensitive to Fed actions (XLF) and the shutdown of the economy. We eliminated all holdings in late February and early March.
Current Position: None
Market By Market
Small-Cap (SLY) and Mid Cap (MDY) – Four weeks ago, we sold all small-cap and mid-cap exposure over concerns of the impact of the coronavirus. We remain out of these sectors for now.
Current Position: None
Emerging, International (EEM) & Total International Markets (EFA)
Same as small-cap and mid-cap. Given the spread of the virus and the impact on the global supply chain. Trading opportunities only.
Current Position: None
S&P 500 Index (Core Holding) – Given the rapid deterioration of the broad market, we sold our entire core position holdings for the safety of cash. We did add a small trading position in QQQ on Monday afternoon, and sold it on Friday.
Current Position: None
Gold (GLD) – We added a small position in GDX recently, and increased our position in IAU early this week. With the Fed going crazy with liquidity, this will be good for gold long-term, so we continue to add to our holdings on corrections.
Current Position: 1/4th weight GDX, 1/2 weight IAU
Bonds (TLT) –
Bonds regained their footing this week, as the Fed became the “buyer” of both “first” and “last” resort. Simply, “bonds will not be allowed to default,” as the Fed will guarantee payments to creditors. We have now reduced our total bond exposure to 20% of the portfolio from 40% since we are only carrying 10% equity currently. (Rebalanced our hedge.)
Current Positions: SHY, IEF, BIL
Sector / Market 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/Client Update:
Despite the headlines of the “biggest rally in history” this past week, it’s easy to get sucked into the “Media headline” hype. However, let’s put this into some perspective:
Over the last “X” days the S&P 500 is:
- 5-days: +10.2%
- 6-days: +5.4%
- 10-days: -6.25%
It is much less exciting when compared to the fastest 30% plunge in history.
Keeping some perspective on where we are currently is very important. It’s easy to get swayed by the media headlines, which can lead us into making emotional investment mistakes. More often than not, emotional decisions turn out poorly.
We are starting our process of adding equities to the ETF models. As we head out of this bear market, ETF’s will have less value relative to our selective strategies.
This doesn’t mean we won’t use ETF’s at all, but we will selectively use them to fill in gaps to our individual equity selection, or for short-term trading opportunities.
Such was the case on Monday when we took on a position in QQQ for a bounce, and was subsequently closed out on Friday.
We also added small holdings of CLX and MRK to our long-term equity portfolio, as well as increased our exposure to IAU.
We continue to remain very defensive, and are in an excellent position with plenty of cash, reduced bond holdings, and minimal equity exposure in companies we want to own for the next 10-years.
We are just patiently waiting for the right opportunity to buy large chunks of these holdings with both stable, and higher yields.
Let me repeat from last week:
- The ONLY people who care more about your money than you, is all of us at RIA Advisors.
- We will NOT “buy the bottom” of the market. We will buy when we SEE the bottom of the market is in and risk/reward ratios are clearly in our favor.
- This has been THE fastest bear market in history. We are doing our best to preserve your capital so that you meet your financial goals. Bear markets are never fun, but they are necessary for future gains.
- We’ve got this.
Please don’t hesitate to contact us if you have any questions, or concerns.
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