Market Condition Analysis
It is fair to say that the rally in the S&P 500 is becoming a little overextended. Today, the percentage of its underlying component stocks trading above their 50 day moving average climbed to 56, which puts us into positive momentum territory. With that said, there is probably still more steam behind this rally before we encroach upon technically oversold territory from a quantitative perspective.
Since the Brexit event, the Federal Reserve’s shadow of higher interest rates no longer looms over the market. This fundamentally changes the economic landscape and maybe this time our potential cup-with-handle formation (see chart below) actually has a chance of breaking out to new highs. Wouldn’t that be something? Of course, before we do, it would be nice to see some consolidation and confirmation of support at these loftier levels.
Lastly, I wish to remind readers that the previous bullish channel has been violated and this market is still vulnerable to a bearish sell-off. We’re not out of the woods yet, so be careful.
(I’ll be posting a monthly and quarterly report for VFTH’s exchange traded funds’ universe, but before doing so I want to wrap up the daily report.)
On the surface, equities are still basking in the glory of what has now extended into a 3-day rally and continue outperform other asset classes. Latin American (ILF and EWZ) and US stock indexes (SPY, DIA, QQQ, and IWM) continue to provide consistent leadership, especially the small-cap Russell 2000. To make matters better or worse, depending upon which side of the market you are on, even Europe (VGK) perked up today.
Yet, the underlying story still reflects a concern for safety and return of principal. Therefore, it should come as no surprise to investors that the most significant relative strength remains in Bonds (TLT, AGG, TIP and LQD), Gold (GLD) and Real Estate (IYR and REZ). For those requiring exposure to equities, the most preferred sectors are Utilities (XLU), Telecom (IYZ) and Consumer Staples (XLP).
Signing off at Hillbent…
(See asset class performance table below)
ETF Capital Markets Performance Summary