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Special Report: Market Review & Update 10-03-19

Written by Lance Roberts | Oct 3, 2019

With the sell off this week, I have been getting a lot of emails asking if anything has changed technically. Normally, on Thursday, we produce a Long-Short Idea List. However, I wanted to use the opportunity today to update a few of the major markets and five sectors that warrant some attention.

Feel free to email me with any questions.

S&P 500 Index

  • We are still maintaining our core S&P 500 position as the market has not technically violated any support levels as of yet. However, it hasn’t been able to advance to new highs either.
  • Yesterday’s sell-off did NOT violate support, but is also NOT oversold as of yet, which suggests further downside is possible.
  • There is likely a tradeable opportunity approaching for a reflexive bounce given the depth of selling over the last couple of days. We will look to add a 2x long-S&P 500 to the long-short portfolio if the market looks like it is going to try and firm up.
  • Short-Term Positioning: Bullish
    • Last Week: Hold current core positions
    • This Week: Hold current core positions.
    • Stop-loss moved up to $282.50
    • Long-Term Positioning: Neutral due to valuations

S&P 600 Index (Small-Cap)

  • The sell-off was more brutal in small and mid-cap stocks as economic weakness hits smaller capitalization companies harder.
  • SLY had gotten overbought, and the sell-off has not retraced back to oversold as of yet.
  • The “buy signal” is still intact at the moment but the technical trend is terrible. If support is broken at $85, a retest of $82 is likely. Below that it gets ugly quickly.
  • The risk outweighs the reward of a trade at this juncture.
  • Short-Term Positioning: Bearish
    • Last Week: No position
    • This Week: No position.
    • Stop loss previously violated.
  • Long-Term Positioning: Bearish

S&P 400 Index (Mid-Cap)

  • MDY, like SLY, is technically not in great shape. Importantly, MDY has now failed at the top of the downtrend line.
  • While MDY registered a short-term “buy” signal, the inability to follow through is disappointing and a failure at the 200-dma will lead to a retest of previous lows.
  • We have no exposure to Mid-caps currently and the risk/reward of a trade setup really isn’t there.
  • Short-Term Positioning: Neutral
    • Last Week: No holding
    • This Week: No holding
  • Long-Term Positioning: Bearish

Emerging Markets

  • EEM continues to underperform. The sector did rally previously on hopes of a trade resolution, and the ECB cutting rates, but that rally is simply another rally in a long-term downtrend.
  • A sell signal has been triggered as well, but is trying to reverse.
  • Unfortunately, EEM failed at resistance, and has violated the 200-dma and support.
  • As noted previously we closed out of out trading position to the long-short portfolio due to lack of performance.
  • Short-Term Positioning: Bearish
    • Last Week: No position
    • This Week: No position
    • Stop-loss violated at $41
  • Long-Term Positioning: Neutral

International Markets

  • Like EEM, EFA continues to drag.
  • EFA remains in a downtrend, and failed at the downtrend resistance line.
  • While EFA has triggered a buy signal, the failure to advance keeps the market unattractive as a trading opportunity currently.
  • If the 200-dma is violated we will see a retest of previous lows.
  • As with EEM, we did add a trading position to our long-short portfolio model but it, like EEM, was not performing so we closed it.
  • Short-Term Positioning: Neutral
    • Last Week: No position
    • This Week: No position.
    • Stop-loss was violated at $64
  • Long-Term Positioning: Neutral

Basic Materials

  • “XLB remains confined to a very broad topping pattern currently BUT it continues to hold onto support at the 200-dma.
  • The sharp sell-off yesterday comes as data has begun to really address the economic weakness we have been forecasting for a while.
  • XLB is set to retest recent lows and the 200-dma. However, with multiple failures at recent highs, the risk/reward for a trade isn’t that appealing. This is particularly the case if economic data continues to weaken.
  • We are remaining underweight the sector for now, unless trade deal negotiations appear to be improving.
  • Short-Term Positioning: Neutral
    • Last Week: Hold current positions with a tighter stop-loss.
    • This Week: Hold current positions with tighter stop-loss
    • Stop-loss adjusted to $55
  • Long-Term Positioning: Bearish

Energy

  • Previoulsy, we discussed the surge in XLE due to the bombing in Saudi Arabia. That surge is over as oil prices have fully retraced the spike.
  • XLE broke below the test of the 200-dma and has now violated the support level we noted on Tuesday at $58. Next support is previous lows.
  • The “sell signal” was in the process of being reversed, but that failed as prices didn’t pick up.
  • While there is “value” in the sector, there is no need to rush into a position just yet. The right opportunity and timing will come, it just isn’t right now.
  • We were stopped out of our position previously.
  • Short-Term Positioning: Bearish
    • Last week: Stopped out.
    • This week: Stopped out.
    • No position currently
  • Long-Term Positioning: Bearish

Industrials

  • XLI failed at previous tops and has turned lower and broken through initial support.
  • XLI is not oversold which puts $72 as the next support level that must hold.
  • The recent buy signal is also at risk of reversing.
  • We reduced our risk to the sector after reaching our investment target. We have also adjusted our stop-loss for the remaining position.
  • Short-Term Positioning: Neutral
    • Last week: Hold 1/2 position
    • This week: Hold 1/2 position.
    • Stop-loss adjusted to $72
  • Long-Term Positioning: Neutral

Technology

  • XLK remains one of the “safety” trades against the “trade war” but that sector was unable to avoid the selloff yesterday.
  • XLK is reversing it’s short-term overbought condition but is getting close to reversing its current buy signal and uptrend line from the 2018 lows.
  • XLK held support at $75 previously, and needs to do so again or things could get dicey for the sector.
  • Short-Term Positioning: Bullish
    • Last week: Hold position
    • This week: Hold position
    • Stop-loss adjusted to $75.00
  • Long-Term Positioning: Neutral

Staples

  • Defensive sectors took a hit yesterday along with everything else.
  • As noted previously, defensive sectors are an EXTREMELY crowded trade, and we suggested taking profits.
  • The “buy” signal (lower panel) is still in place but has been worked off to a good degree. Risk is clearly elevated.
  • We previously took profits in XLP last week and reduced our weighting from overweight. We will likely look to reduce further when opportunity presents itself.
  • Short-Term Positioning: Bullish
    • Last week: Hold positions, take profits if needed.
    • This week: Hold positions, take profits if needed.
    • Stop-loss adjusted to $58
    • Long-Term Positioning: Bullish

Health Care

  • XLV remains on a sell signal but failed to hold support at previous lows.
  • XLV has been underperforming as of late and after reducing our position previously, we will look to reduce further if the next support levels are violated.
  • We continue to maintain a fairly tight stop for now.
  • Short-Term Positioning: Neutral
    • Last week: Hold position.
    • This week: Hold position
    • Stop-loss is at $86
    • Long-Term Positioning: Neutral

Talk with an Advisor & Planner Today!

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Lance Roberts is a Chief Portfolio Strategist/Economist for RIA Advisors. He is also the host of “The Lance Roberts Podcast” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report“. Follow Lance on Facebook, Twitter, Linked-In and YouTube

2019/10/03
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