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Can a bull get a break?? The bulls had a great opportunity to show some force after breaking from a tight trading range in the S&P 500 the prior week, but they simply could not hold on. The weekly negative .54% return for the S&P 500 added a bear bar for the week and gives pause to the bulls. The good news for the bulls is that the US Small Cap index made its way to a new high last week giving some hope the larger capitalization stocks will follow.
Bear ‘o’ Meter
The bear ‘o’ meter slid slightly from last week but still reads positive. Market breadth has dragged down the reading slightly. Breadth over the last week has become overbought on both the long and short-term oscillators relative to its current readings. Until we get into the negative readings, we are still looking for opportunities to buy. The vehicles that look the best from a technical perspective are the sectors and industries that are believed to perform best late in the bull market and economic cycle. One example is commodities.
The swing indexes we like are the following: United Kingdom / Japan / Oil / Extended Treasury / Australia / Brazil / EAFE Value / Global Natural Resources / Global Wind Energy
Most of the indexes finished slightly down for the week. The exceptions were United Kingdom, Oil, Global Natural Resources, and Global Wind Energy. Brazil was the big loser. We are close to getting stopped out. This past week might have been a blow off move as it is the largest bear bar in the current leg down, but only time will tell. If we can get a strong bullish move this week, it would suggest that this past week was exhaustive in nature and it’s time for a bull leg.
Switzerland did not trigger strong enough this past week so we didn’t take action. Some could argue the signal did trigger as it was up slightly for the week, but I was not convinced, so we are going to table Switzerland for now.
We are looking to add healthcare to the mix if we can get positive action this week. This would add slightly more risk to the portfolio, but if the markets follow the breakout of small caps, the healthcare sector makes sense both fundamentally and technically. Fundamentally as it tends to be a late cycle performing sector and technically as last week was a continuation bar from a breakout. Secondly, we will be rotating from US Large Caps to US Small Caps in order to hopefully take advantage of the stronger market segment for the months to come.
The Education/Gratitude Book Club
The book for this month is “Misbehaving: The Making of Behavioral Economics” by Richard H. Thaler. Again…the book hasn’t arrived yet. I’m starting to think it may have gotten lost in the mail. Getting a little anxious as we are getting late in the month and it’s going to take time to read! Could be worse…it will work out. Hey, have a great week, it should be an interesting one in the markets!
Adam Straseske, CMT
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