XLV is a breakout after an extended period of under performance. Biotech, one of our bellwethers for XLV, has improved. IYW has had strong selling since the last Sector Review, and this sector has been extended for some time. The risk is that the “Fang Stocks” are moving from strong to weak hands and could do badly for a while.
The SPY has paused at 240 and may weaken from here into May, but so far this has been a sideways correction rather than a larger decline. Whichever happens, we are getting buying indications and would start to take positions for a strong second half.
XLV and IYZ remain under weights. XLV improved a lot but the chart is worse than other sectors and the accumulation model remains weak. Note that there is no Biotech in XLV, so the improvement there is not helping this area.
XLI has the strongest accumulation model of any sector, and has not been a popular choice. It is breaking out. We think that growth could come from the Industrial sector in 2017, particularly if there are some infrastructure renewal measures. XLF, of course, benefits from higher rates and the anemic rally in TLT in the face of a monthly buy signal suggests 2017 will be a tough year for bonds.
The market advanced after the election of Donald Trump, and now should consolidate. Note that XLI, one of our over weights, is seeing a recycle on the daily stochastic without much price decline. This is a sign of strength.
The Fred Report - Sector Review November 2016The market has started to advance after the election of Donald Trump. Because of this, we raise XLF to an overweight, and lower IYZ to an underweight in the Large Cap Sector portfolios. Telecom is likely to lag given issues around ATT’s latest acquisition, and rising rates should benefit XLF, which is a short-term breakout. For now, NO CHANGES to the Small Cap Sector portfolio.The Fred Report - Sector Review October 2016SPY is down around 2 points since the last Sector Review, but the indicators still suggest our target of 223 should be struck. We begin the process of introducing XLRE, the new REIT sector, in this report, and will adjust the Sector Portfolios at the end of the month.The Fred Report - Sector Review September 2016Leadership looks to be Industrials with some moves into Materials as well. So far, income and defensive names continue to perform well, but we are alert to the possibility that this will change. XLP has slowed and is now an equal weight. IYZ may fail here – the accumulation models suggest this is the case, so although an equal weight we are cautious.The Fred Report - Sector Review August 2016XLP has slowed and is now an equal weight. At the same time, IYZ has finally broken out of a base, but is retesting the breakout. IYZ may fail here – the accumulation models suggest this is the case, so although an equal weight we are cautious.The Fred Report - Sector Review July 2016We forecasted a strong second half in our yearly forecast. This now looks likely, and one big question is whether there will be some big leadership/sector changes as this evolves? So far, income and defensive names continue to lead, but we are alert to the possibility that this will change. The Fred Report - Sector Review June 2016SPY is up just less than 2 points since the last Sector Review; it is basically unchanged year over year. We have been expecting more choppiness and corrective behavior into June, and then a strong second half. The weekly stochastics, and other indicators, suggest that a correction into July is now possible but the next weekly stochastic buy should result in a strong second half, unless the market advances from here.The Fred Report - Sector Review May 2016The weekly stochastics, and other indicators, suggest that a correction into June in line with forecasts is certainly possible and we are positioned for that eventuality. XLP made new highs. XLI has strong accumulation models, and is not a popular choice, yet it is trading well – invalidating the Head and Shoulders topping pattern noted in past venues.The Fred Report - Sector Review April 2016SPY is up around 3 points since the last Sector Review; it is basically unchanged year over year. We expect more choppiness and corrective behavior into June, and then a strong second half. We have adjusted sector weightings a bit, as noted above. We think this is a good mix of an offensive and defensive allocation.The Fred Report - Sector Review March 2016XLP is making new highs. XLY has strong accumulation models, but may be too popular. We continue to watch XLB and XLI carefully, as they could emerge as leading sectors – and stochastics have started to show some relative strength. The Fred Report - Sector Review February 2016SPY is down around 1.50 points since the last Sector Review, but it has been a good bit lower throughout the month. Caution flags are out. We will leave sector weightings the same for now – the market may be making a tradable bottom and if so we may make changes intra-month.The Fred Report - Sector Review January 2016We were expecting a down first week, but the start to 2016 is weaker than we expected and caution flags are out. We are adjusting sector weightings to reflect a bearish market structure, until the markets broaden out.The Fred Report - Sector Review December 2015Stocks are now resolving the short-term overbought readings in the technical indicators, but in the grand scheme of things this is not significant. This has been a relatively flat year. What changes could we see in 2016? We are watching XLB and XLI carefully.The Fred Report - Sector Review November 2015Last month we made some changes to sector weightings and this month we leave them alone. This makes sense as we believe the market should be narrow into yearend. Those FA’s seeking high performance (with accompanied higher risk!) should choose stocks within 10% of their highs in all sectors. We would not do this ordinarily. This does not sound like investing, and is designed to take advantage of “performance chasing” on the part of big funds into yearend.