Technically Speaking: A Blind Bull

Technically Speaking: A Blind Bull




Technology, Discretionary, Financials – Have continued to push higher particularly as money is chasing technology in particular. While the overall trends are positive, these sectors are becoming quite extended suggesting some profit taking is warranted to rebalance risk.

Staples continue to remain under pressure particularly as earnings reports have been weak. However, the weakness in staples should not be summarily dismissed as this sector in particular is reflective of the broader trends economically speaking. Pay attention as the moving average crossover is close to triggering which will put downward pressure on the sector as a whole.

Basic Materials and Industrials stagnated last week but remain exceedingly overbought with valuations stretched. After big runs in both these sectors on hopes of “tax cuts and infrastructure” from the current administration, some rebalancing of holdings would be prudent.

Healthcare has slipped back to its 50-day moving average. The trend remains positive currently, but watch for a violation of previous lows and any failed rally attempt from the current oversold levels to signal a potential shift in portfolio weightings.

Energy – the underlying technicals have improved and the sector is close to registering a moving average crossover “buy signal.” The recent correction tested, and held, previous support at the 200-day moving average and, along with the breakout of the previous October highs, makes this sector much more appealing from an investment standpoint. The sector is currently grossly overbought so look to add energy exposure on dips to previous supports.

Utilities, we remain long the sector and have moved stops up to the 50-dma. Trends remain positive and interest rates have likely peaked for the current advance.

Small and Mid-Cap Stocks have stalled a bit after a torrid advance beginning last August. With both of the indexes very overbought, some rebalancing of portfolio risks is appropriate.

Emerging Markets and International Stocks have shown some weakness as of late but remain in a bullish trend overall. The recent successful test of the 50-day moving average continues to confirm the bullish trends in these markets. We remain long these markets for now but have moved up stops accordingly.

Gold – I noted previously the failure of precious metals to break back above the 50-dma. With the complete absence of FEAR of a potential crash, gold has temporarily “lost its luster” as a safe haven. We continue to watch the commodity currently, but remain on the sidelines for now.

S&P Dividend Stocks, after adding some additional exposure back in August, the index managed an extremely strong advance which ended two weeks ago as market participation narrowed sharply. We are holding our positions for now with stops moved up to $92. Take some profits and rebalance accordingly. Dividend stocks have gotten WAY ahead of themselves currently as the yield chase continues.

Bonds and REIT’s took a hit this week as “tax reform” moved forward and the expectations for higher inflation, wages, and economic growth pushed rates higher. While the economic benefit from tax reform is “WAY OVERSTATED,” we continue to hold our current exposure and continue to add to holdings on bounces in rates towards 2.4-2.5%.

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 Positioning Update

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